RBA raised the cash rate to 4.1%, while interest rate on Exchange Settlement balances is at 4.0% – both had an increase of 0.25%.
Inflation in Australia remains too high around 7%, and the Board believes it’ll take some time before it goes back to the target range. As explained, these further increases on interest rates are to give the public confidence that inflation will soon return to target within reasonable time.
High inflation has severe impacts on the life of people and the economy. Families and businesses are negatively affected, and income inequality worsens. This reduces savings, hurts family budgets, and hinders businesses in planning and investing.
The Australian economy’s growth has slowed down, while the conditions in the labour market remain very tight. A slight increase in unemployment was recorded at 3.7% in April as job vacancies and advertisements are still at very high levels, although it was reported that labour shortages have eased.
In response to high inflation and the tight labour market, wages growth has picked up. Provided productivity growth picks up, wages growth remains consistent with inflation targets.
With limited spare capacity in the economy and a very low unemployment rate, the Board remains vigilant to the risk that ongoing high inflation may lead to higher prices and wages. Consequently, it will continue to closely monitor the evolution of labour costs and firm pricing behaviour.
As always, the Board consistently seeks strategies to keep the economy stable as inflation returns to the 2-3% target. In order to return inflation to target in a reasonable timeframe, monetary policy may need to be tightened further, but that will depend on how the economy and inflation develop.
The Board will continue to monitor developments in the global economy, trends in household spending, and inflation and employment trends. Despite the challenging economic environment, the Board will remain resolute in its determination to return inflation to target.
