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Economics update | 10 June 2022
09 Jun 2022
Sharp rise in the cash rate to tame accelerating inflation
At its June meeting, the Reserve Bank board raised the cash rate by 50 basis points to 0.85 per cent. This was notably higher than market expectations of 25 to 40 basis points.
The move comes in response to accelerating inflation from sharply rising energy prices and continuing supply chain constraints.
The Reserve Bank note that it expects inflation to continue to rise further, before declining back towards the 2 per cent to 3 per cent target range next year, suggesting that further rises in the cash rate can be expected in the coming months.
The Australian economy remains resilient, growing 3.3 per cent in the year to March, with strong employment growth and a very low unemployment rate of 3.9 per cent.
However, the international outlook is deteriorating, with the war in Ukraine significantly slowing the global recovery and fueling higher inflation. Concerns of stagflation in some of our key trading partners, including US, UK and EU, are mounting.
The RBA will need to tread a fine line over the coming months in managing the inflationary pressure, while continuing to support economic growth.
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