Reserve Bank of Australia increases key interest rate by 25 bps

Inflation in Australia, currently at 7 per cent, has passed its peak but remains too high, and the RBA has judged that a further increase in interest rates is warranted to return inflation to its target range within a reasonable timeframe.

While goods price inflation is slowing due to a better balance of supply and demand following pandemic disruptions, services price inflation remains high, and unit labour costs are rising, with productivity growth remaining subdued. The labour market remains very tight, with the unemployment rate at a near 50-year low. However, many firms continue to experience difficulty hiring workers, although there has been some easing in labour shortages and the number of vacancies has declined a little.

“The Board’s priority remains to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment. Medium-term inflation expectations remain well anchored, and it is important that this remains the case. Today’s further adjustment in interest rates will help in this regard,” Philip Lowe, governor of RBA, said in a statement.

The RBA has stated that some further tightening of monetary policy may be required to ensure that inflation returns to its target range in a reasonable timeframe.

Fibre2Fashion News Desk (KD)