The possibility of further interest rate hikes cannot be ruled out.

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  1. The Reserve Bank of Australia (RBA) has signaled the potential for further increases in interest rates as it seeks to curb inflation intensifying the cost-of-living crisis in the country.

On Tuesday, the RBA Board disregarded calls from populist Labor Party governors for an immediate interest rate cut, maintaining the cash rate at 4.35% and indicating that a reduction is unlikely in the short term.

The RBA Board expressed that, despite recent data showing a moderation in inflation, initiating an interest rate cut is still premature for the central bank.

In a post-meeting statement, the Reserve Bank of Australia emphasized that the most effective path for ensuring inflation returns to the target level within a reasonable timeframe will depend on data and evolving risk assessments, with the possibility of further interest rate hikes not ruled out.

Key points from this week’s RBA Board statement include:

  1. The cash rate remains unchanged.
  2. Inflation has decreased to 4.1% but remains elevated.
  3. Domestic cost pressures stem from services and labor.
  4. The job market remains tight but is cooling off.
  5. Household expenditures are squeezed by high inflation, interest rates, and taxes.
  6. It is projected that inflation will return to the midpoint of the 2% to 3% target range by 2026.
  7. International economic risks exist in China, Ukraine, and the Middle East.
  8. Overcoming inflation remains the primary goal of the Board.
  9. The Reserve Bank of Australia retains the possibility of further interest rate hikes.

According to the latest quarterly economic outlook from the RBA, it is assumed that by June, inflation will decrease to 3.3%, slightly below the central bank’s target range of 2% to 3%. However, over the next 18 months, inflation is expected to drop below 3%, and it will take over two years to return to the midpoint of the 2.6% range.

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