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The bank says its May decision hinged on the impact of its 10 previous rate rises over the past year, which have yet to flow through the economy.
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Inflation level too high for comfort: RBA
02 May 2023
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The RBA has surprised observers with a 0.25 basis points rise that takes the cash rate to 3.85 per cent and said returning inflation to 2 to 3 per cent remained its priority.
“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 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.
“Goods price inflation is clearly slowing due to a better balance of supply and demand following the resolution of the pandemic disruptions. But services price inflation is still very high and broadly based and the experience overseas points to upside risks.”
CreditorWatch’s chief economist Anneke Thompson said the bank was concerned about services inflation and wanted to strip more demand from the economy.
“While the overall inflation rate has declined from December peaks, services inflation is still rising and may not have peaked,” she said.
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“The RBA will be hoping that this latest move will put the economy deep into restrictive territory, and help to slow demand in the services space to ease price rises.
“However, both energy and rental costs are not responsive to interest rate moves, so it is likely inflation in these areas will prove very sticky.
“We are now highly likely to be at the peak of the monetary policy tightening cycle, as the current settings will put enormous pressure on borrowers, particularly those that secured a home loan in the past two years.”
CPA Australia senior manager of business and investment Gavan Ord said the decision was a stark reminder of the pressure businesses and households were under.
“Those who thought the rising interest rate cycle was over will be sorely disappointed,” he said. “We want next week’s budget to include targeted support for small businesses and the economy.
“We want the government to focus on opportunities to improve business resiliency and dynamism. A skills shortage, lack of young entrepreneurs and rising costs are putting pressure on the small business sector. We want to see measures to counter these issues.”
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