RBA Hikes But Inflation Not At Top Of Band Until End 2025
The RBA hiked rates 25bp to 4.35% after leaving them unchanged for four consecutive months. The meeting included revised staff forecasts which included the peak in unemployment within the time horizon revised down 0.25pp to 4.25% and CPI inflation returning to the top of the target band by the end of 2025 rather than “within” it. Despite this the tightening bias has been toned down but each decision remains highly data dependent.
- The persistence of inflation and its “slower than earlier expected” decline, plus the upward revision to the CPI forecasts meant that the Board hiked to be “more assured that inflation would return to target in a reasonable timeframe”. Q4 2024 inflation is now expected to be 0.2pp higher at 3.5%.
- The first line in the final paragraph was changed to “whether further tightening of monetary policy is required” from “some further tightening of monetary policy may be required”, plus the extension of “a reasonable timeframe” is reading dovish despite the Board remaining “resolute” in returning inflation to target.
- The statement notes that the information since the last meeting points to an increased risk that inflation will remain “higher for longer”. Given its data dependency, any further indications that that remains the case may be the catalyst for another hike.
- The RBA remains focussed on the same four things, but consumption has been broadened to domestic demand. There was no indication of the GDP trajectory apart from that there will be a “period of below-trend growth”.
- The paragraphs on uncertainties and the risks of high inflation have few changes, except the addition of the “implications of the conflicts abroad” to the former.
- See statement here.