RBA raises cash rate target by 50bps to 0.85% today, larger than expectation of 40bps. Interest rate on exchange settlement balances is also lifted by 50bps to 75bps. The central bank also maintains tightening bias, as “the Board expects to take further steps in the process of normalizing monetary conditions in Australia over the months ahead.”
In the accompanying statement, RBA said inflation in Australia has “increased significantly”, and is “expected to increase further”, before declining back towards the 2-3% target range next year. The economy is “resilient” while labour market is “strong”.
One source of uncertainty is “how household spending evolves”, given the “increasing pressure” from higher inflation, and interest rates. The central scenario is for strong household consumption growth this year, but RBA will pay close attention to various influences on consumption.
