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Economics update | 10 March 2023
09 Mar 2023
Tenth consecutive cash rate increase … with more to come.
The Reserve Bank Board increased the cash rate a further 25 basis points at its meeting on Tuesday. This is the tenth consecutive rate rise, taking the cash rate to 3.6 per cent — its highest level since 2011. This is the steepest rate of increase in the history of the Reserve Bank and a considerable step up from a cash rate of 0.1 per cent when it began raising the rate in May last year.
There are indications that inflation may have peaked at the end of 2022, with the monthly CPI falling from 8.1 per cent in December 2022 to 7.3 per cent in January 2023. However, the Reserve Bank is concerned that it will be some time before inflation is back to target rates.
There are signs that the rate rises have been taking effect, with economic activity beginning to slow, particularly household consumption and the outlook for housing construction. Counter to this, wages growth is continuing to pick up in response to the tight labour market which will put further pressure on inflation.
The statement from the Reserve Bank Governor highlights that monetary policy acts with a lag, with the full effect of the cumulative rate increases yet to be felt by consumers, particularly mortgage holders. ACCI has called on the Reserve Bank to pause over the next few months while it assesses the effect of the past rate rises.
The Reserve Bank Board has indicted that further rate rises may be necessary in the coming months to return inflation to its target range, stating “(t)he Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that“.
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