RBA hikes rates by another 25 bp

Yasmine Raso

Senior Journalist, Financial Newswire

1 November 2022

The Reserve Bank of Australia (RBA) announced it has increased the cash rate by a further 0.25 per cent to 2.85 per cent, after industry expectations were split on whether a larger hike would occur or the central bank would continue to slowly increase rates.

The RBA Governor, Philip Lowe, said this aligned with the central bank’s past and forecasted interest rate rises to return inflation to a comfortable target and provide “sustainable” balance of “demand and supply in the Australian economy”.

“A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around 8 per cent later this year,” Lowe said in the decision today.

“Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand. Medium-term inflation expectations remain well anchored, and it is important that this remains the case. The Bank’s central forecast is for CPI inflation to be around 4¾ per cent over 2023 and a little above 3 per cent over 2024.

“The Australian economy is continuing to grow solidly and national income is being boosted by a record level of the terms of trade. Economic growth is expected to moderate over the year ahead as the global economy slows, the bounce-back in spending on services runs its course, and growth in household consumption slows due to tighter financial conditions.

“The Bank’s central forecast for GDP growth has been revised down a little, with growth of around 3 per cent expected this year and 1½ per cent in 2023 and 2024.”

Lowe also said while the RBA Board is expecting to increase interest rates in the coming months, it is also “monitoring the global economy, household spending and wage and price-setting behaviour” to determine the amount and rate of future increases.

The decision from the RBA also announced a rise in the interest rate on Exchange Settlement balances by 25 basis points to 2.75 per cent.