RBA Increases rates 25bp

The RBA increased interest rates by another 25bp to 2.85% this afternoon, continuing along the cautious path they pivoted to last month, as was widely expected.

However, the bigger news was the revised inflation forecasts in the RBA's statement. The RBA now expects inflation to peak above 8% later this year, and stay above 4.75% in 2023, and won't fall below 3% at all in 2024. That is, inflation will be higher, for longer, and the RBA (bizarrely) doesn't seem to mind.

There really isn't a lot of sense to the RBA's approach. Higher inflation for longer is bad for the economy and households. The RBA could shorten this cycle by raising rates further and faster.

I'm still expect the RBA will have to raise the cash rate to around 4.20% to tame inflation and there is nothing to be gained getting there slowly and stretching out the period of excess inflation and the damage it causes to household incomes and balance sheets.