Governor Philip Lowe Decision about monetary policy

The Board take decision to raise the cash rate goal by 25 basis points to 2.60 percent at its meeting today. The interest rates on Exchange Settlement balances was also raised by 25 basis points to 2.50 percent.

The Board is dedicated to gradually bringing inflation down to the 2-3% level. The current increase in interest rates will assist in achieving this objective, and more increases will probably be needed in the coming months. Within a short time, there has been a significant rise in the cash rate. As a result, the Board agreed to raise the cash rate by 25 basis points this month while considering Australia’s prospects for inflation and economic expansion.

Australia’s inflation rate is excessively high, as it is in the majority of other nations. Strong local demand in relation to the economy’s capacity to supply that demand and international forces both contribute to this high inflation, which are mostly explained by these variables.

Over the coming months, further inflation is anticipated until it starts to drop back to the range of 2-3%. The continued settlement of supply-side issues worldwide, recent drops in the pricing of some commodities, and the effects of rising interest rates all contribute to the anticipated slowdown in inflation next year.

It is crucial that the stability of the medium-term inflation expectations be maintained. According to the Bank’s main projection, CPI inflation will be almost 73.4 percent in 2022, slightly more than 4 percent in 2023, and roughly 3 percent in 2024.

A record level of the terms of trade is boosting national income while the Australian economy is still expanding firmly. Due to the extremely competitive job market, many businesses are having trouble filling open positions. In August, the unemployment rate was 3.5%, which was close to the lowest level in over 50 years.

Both job openings and job postings are at very high levels, which points to a further reduction in the unemployment rate in the coming months. In addition, when economic growth slows, a little increase in the unemployment rate is anticipated.

Although it is still lower than in other advanced countries where inflation is stronger, wages growth has continued to increase from the low rates of previous years. The Board will continue to pay careful attention to both the evolution of labour costs and the price-setting behaviour of enterprises in the time ahead due to the tight labour market and upstream pricing pressures.

A robust economy and a prolonged period of full employment require price stability. Given this, the Board’s top aim is to gradually bring inflation down to the range of 2% to 3%. It aims to accomplish this while maintaining a stable economy. This equilibrium can only be attained via a difficult and unpredictable route.

The recent decline in the forecast for the world economy is one factor contributing to uncertainty. Another is how Australian household spending adjusts to the worse economic times. Budgets for households are being placed under strain by increasing inflation and interest rates, with mortgage payments still feeling the full consequences of higher interest rates.

In addition, consumer confidence has decreased, and following previous significant price gains, house prices are now falling. The opposite is also true: people are hiring more, putting in longer hours, and earning more money. Additionally, a lot of households have amassed sizable financial reserves, and the saving rate is still greater than it was before the epidemic.

The latest increase in interest rates announced today will assist in achieving a more enduring equilibrium between supply and demand in the Australian economy. This is required to lower inflation once more. The Board anticipates further raising interest rates in the coming years. It closely monitors household spending, wage and price setting behaviour, and the global economy.

The Board’s evaluation of the outlook for inflation and the labour market, along with the incoming data, will continue to influence the magnitude and timing of future interest rate rises. The Board is nonetheless steadfast in its resolve to bring inflation back to goal and will take all necessary steps to do so.