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‘Too early’ for action on cash rate, RBA cautions

March 16, 2022

‘Too early’ for action on cash rate, RBA cautions

Inflation has ticked up to 3.5% and is tipped to keep climbing, but the Reserve Bank of Australia cautions it is too soon to raise interest rates.

Inflation has ticked up to 3.5% and is tipped to keep climbing, but the Reserve Bank of Australia cautions it is too soon to raise interest rates.

Minutes from the RBA’s March cash rate board meeting reveal governor Philip Lowe and company remain committed to “maintaining highly supportive monetary conditions” to support a return to full employment and a stable inflation rate.

As such, the board said the cash rate will not change until the RBA is confident inflation is ‘sustainably’ within a range between 2% and 3% – less than the current rate of 3.5%.

“While inflation had picked up, members agreed it was too early to conclude that it was sustainably within the target band,” the board said. 

“There were uncertainties about how persistent the pick-up in inflation would be given recent developments in global energy markets and ongoing supply-side problems. 

“Wages growth also remained modest and it was likely to be some time before aggregate wages growth would be at a rate consistent with inflation being sustainably at target.” 

Those ‘energy market’ and ‘supply-side’ problems chiefly refer to the ongoing conflict between Russia and Ukraine, and its associated spill-over into energy markets, which the board said has “created additional uncertainty about the inflation outlook”. 

The RBA expects these current circumstances will continue to drive up inflation over the coming quarters, but the board noted inflation in Australia remains relatively low, and price gains should begin to moderate as supply chain pressures ease.

While the board noted markets have priced in rate hikes from the middle of 2022 to reach 1% by the end of the year and 2% by the end of 2023, the RBA did not give a timeline for when rates might increase, outside of when their inflation target is met.

“The board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve,” the RBA said.

Sources


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