Just In: The RBA has signalled further rate hikes could still be ahead as it lifted the official cash rate to 3.85 per cent.
Just In: The Reserve Bank of Australia has signalled further rate hikes could still be ahead as it lifted the official cash rate to 3.85 per cent.
Today’s 25 basis point rise is the 11th since the central bank started a huge tightening cycle in May last year.
Read more: Two decades of data shows where inflation is biting
It’s come despite an indication inflation is starting to fall, with data released last week showing prices rose 7 per cent nationally in the year to March, down from 7.8 per cent in the 12 months to December.
That’s far above the bank’s target band of between 2 per cent and 3 per cent, but services inflation was at the highest level since 2001.
"Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range," the RBA board said.
The RBA said further hikes may still be required, but it would depend how the economy tracked in months ahead.
"The board held interest rates steady last month to provide additional time to assess the state of the economy and the outlook," the cental bank said.
"While the recent data showed a welcome decline in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range; inflation is expected to be 4.5 per cent in 2023 and 3 per cent in mid-2025."
The RBA said supply and demand for goods was in better balance, which had restricted inflation for those products.
"But services price inflation is still very high and broadly based and the experience overseas points to upside risks," the bank said.
"Unit labour costs are also rising briskly, with productivity growth remaining subdued."
Tough fight
In April, a review of the RBA’s structure maintained the inflation focus, keeping the central bank’s independence and the target band.
The review also said the RBA had been slow to respond to inflation, but acted decisively once it moved.
The US Federal Reserve will also make a rates call this week, while the Bank of England will be making its own announcement next week.
Australia’s surge of inflation came after a big expansion of the RBA’s balance sheet, which nearly tripled over two years, and huge government stimulus in response to the pandemic.
The RBA review cited those two factors as key in the recent inflation breakout, suggesting as much as 3 percentage points of inflation had been driven by stimulus, especially by the government.
