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Reserve Bank Governor Philip Low said today’s interest rate hike is another step towards normalizing monetary conditions in Australia as the bank works to bring the economy back to normal. inflation within its target range of 2 to 3%.
“The board expects to take further steps in the process of normalizing monetary conditions over the coming months, but it is not on a predefined path,” Lowe said.
Future interest rate decisions will be guided by incoming data, he said, including new inflation and employment figures.
Inflation is expected to peak later this year at 7.75% before falling to just over 4% through 2023 and around 3% through 2024.
“There is widespread upward pressure on prices due to strong demand, a tight labor market and capacity constraints in some sectors of the economy. This year’s flooding is also affecting some prices,” Lowe said.
Economic growth is currently strong, but is expected to slow. The RBA forecasts GDP growth of 3.25% this year and 1.75% in 2023 and 2024.
The labor market also remains tight, Lowe said, with signs that wages are rising.
Unemployment is 3.5% and is expected to decline further this year, before rising to around 4% by the end of 2024.
The RBA said household spending will remain a key source of uncertainty, amid low consumer confidence, falling property prices and rising inflation, but also a rise in the number of people finding jobs and increasing their working hours and savings.
“The board will pay close attention to how these different factors balance each other when assessing the appropriate monetary policy framework,” Lowe said.