Reserve Bank of Australia Raises Cash Rate Target to 4.60 Per Cent

The Monetary Policy Board of the Reserve Bank of Australia decided today to increase the cash rate target by 25 basis points to 4.60 per cent, citing elevated inflation and materialising upside risks.

According to the Board, the unanimous decision comes as inflation remains high and recent domestic inflation outcomes proved stronger than anticipated at the previous meeting. The central bank highlighted that broadening conflict in the Middle East has driven global energy prices higher than previously forecasted, while AI-related demand has contributed to rapid price increases for technology-related goods. Domestically, business liaison reports indicate that firms are facing ongoing cost pressures and are continuing to lift prices.

While output growth has slowed, the Board noted that June quarter economic growth was slightly stronger than expected at the margin. Growth in consumer spending is easing, housing prices have decreased across most capital cities, and new housing loans have fallen noticeably. Labour market conditions have eased in line with expectations, though business investment and debt growth remain strong.

The Board identified ongoing uncertainties surrounding domestic economic activity, highlighting potential risks from unresolved Middle Eastern tensions and disruptions to global oil supplies. Weak domestic productivity growth also continues to limit potential growth in Australia, alongside uncertainties tied to the housing market downturn. However, growth among major trading partners has exceeded expectations due to AI-related investments offsetting geopolitical headwinds.

The central bank stated that aggregate demand growth must remain subdued to ease capacity pressures and bring inflation back to target. Noting that three prior rate increases this year have already tightened financial conditions, the Board judged that further tightening was warranted and indicated it remains prepared to increase the cash rate target further if necessary to deliver price stability and full employment.

Source