RBA Increases Cash Rate to 2.35%

The RBA took the widely expected option this afternoon and bumped the cash rate another 50 basis points to 2.35%.

The RBA's statements was along a similar theme to the last couple, but they did make the following interesting observation:

💰 They acknowledged the impact of domestic demand on inflation, in particular "There are widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy."

💰 The RBA still expected inflation to peak later this year and run above 4% for the whole of 2023. Inflation won't fall back inside the target band until 2024.

💰 The RBA notes wage growth has picked up and they expect the unemployment rate to decline further over the months ahead. They will be closely watching this impact this has on wage growth.

💰 The RBA acknowledged the continued strength in household spending as a source of uncertainty going forward. Particulary noting that "people are finding jobs, gaining more hours of work and receiving higher wages. Many households have also built up large financial buffers and the saving rate remains higher than it was before the pandemic."

💰 The RBA continues its commitment to taming inflation but didn't give much in the way of concrete forward guidance (maybe they've learned their lesson), stating "The Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path. The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market."

Nothing particularly ground breaking here. The move of rates to 2.35% bring them in the range of what could be seen as neutral rates. However to bring down inflation we will need interest rates that are clearly restrictive. That means we likely have a few more increases to go before the RBA pauses and waits for the impact of raises to flow through the market.