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RBA

RBA Raises Cash Rate to 2.85% for Inflation

Highlights

  • Cash rate target increases by 25 basis points to 2.85 percent
  • Interest rate on Exchange Settlement balances increases by 25 basis points to 2.75 percent.
  • Inflation expected to peak at 8%
  • CPI inflation is expected to be about 4.75 percent in 2023 and 3% in 2024
  • Unemployment rate remained stable at 3.5%

RBAs Board of Directors voted today to raise the cash rate target by 25 basis points to 2.85 percent. The interest rate on Exchange Settlement balances was also raised by 25 basis points to 2.75 percent. The increase is meant to curb inflation which has been high since the beginning of the year.

In Australia, as in most other nations, inflation is excessively high. The CPI inflation rate was 7.3% in the year to September, the highest in more than three decades. 

Much of the high inflation is explained by global forces, but strong local demand relative to the economy’s capacity to supply that need is also a factor. Bringing inflation to target necessitates a more stable balance of demand and supply.

Inflation is likely to rise higher in the coming months, with inflation now expected to peak at roughly 8% later this year. Inflation is therefore likely to fall next year as a result of persistent global supply-side difficulties, recent commodity price decreases, and weaker demand growth.

Medium-term inflation expectations remain firmly anchored, and it is critical that they do so. CPI inflation is expected to be about 434 percent in 2023 and slightly more than 3 percent in 2024, according to the Bank’s core prediction.

The labor market is extremely tight, with many businesses having trouble finding qualified employees. In September, the unemployment rate remained stable at 3.5%, close to the lowest level in over 50 years.

Since May, the Board has raised interest rates significantly. This was essential in order to achieve a more sustainable balance of demand and supply in the Australian economy, which would aid in returning inflation to goal. 

The Board anticipates interest rates to rise further in the coming months. It is keeping a careful eye on the global economy, household consumption, and wage and price-setting behavior.

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Author

  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.