The Reserve Bank of Australia’s (RBA) Monetary Policy Board has voted to lift its cash rate target – for the fourth time this year – from 4.6% to 4.85%, largely because of excess demand and data centre investment.
“Inflation is too high, and our forecasts suggest it will stay higher for longer,” RBA Governor Michele Bullock told reporters on 3 November.
“Part of the reason for higher inflation is global oil prices. [But] … we are not tightening monetary policy because of the direct impact of oil prices on inflation,” Bullock said. “Monetary policy cannot impact global oil prices,” Bullock added.
Inflation will return to the middle of the RBA’s 2-3% target range in 2028, according to the bank’s forecasts. Australia’s annual consumer inflation rate rose to 4.3% in September, up from 4% in August, because of housing and transport costs, data from the Australian Bureau of Statistics show.
The RBA’s Monetary Policy Board hiked its cash rate target to address capacity pressures that predate the start of the US-Israeli war in Iran, the bank said. On 26 October, BlueScope told investors that it expects its Australian earnings to double in July-December, relative to January-June, because of increased domestic steel demand.
But the Board’s decision was not unanimous. Six members voted to increase its cash rate target, while three voted to leave it unchanged.
The dissenters weighted downside inflationary risks – including unemployment rate rises, decreased housing investment, and stable wage growth – over upside risks, Bullock said. They wanted to observe the impact of past cash rate target hikes before acting.
The RBA wants to slow inflation without tipping the Australian economy into a recession, according to Bullock. “Our central forecast [does] not see us going into recession, but it does see growth slowing,” Bullock said. “We want to try and maintain, if we can, [high employment levels,]” she added.
Australia is better placed and better prepared to handle global inflationary pressures than other advanced economies, Treasurer Jim Chalmers said on 3 November, moments before Bullock spoke to reporters.
“We are doing what we can to take some pressure off Australians, [while we] improve the budget, [and] make our economy more productive and resilient,” Chalmers added.
By Avinash Govind