| Consensus | Consensus Range | Actual | Previous | |
| Change | 25bp | 0bp to 25bp | 25bp | 0bp |
| Level | 4.60% | 4.35% to 4.60% | 4.60% | 4.35% |
Highlights
The Reserve Bank of Australia increased its main policy rate, the cash rate, by 25 basis points from 4.35 percent to 4.60 percent at its meeting today, in line with the consensus forecast. This rate was also left on hold at each of the two previous meetings after three rate hikes earlier in the year. This takesthe rate to its highest level since 2011.
Today's decision follows monthly CPI data that showed headline inflation has now been above the RBA's target range of two percent to three percent for twelve consecutive months. Measures of core inflation also remain above the target range.
In the statement accompanying today's decision, officials argued that"some of the upside risks to inflation are materialising" and expressed their concern that inflation"is still too high" despite recent declines. They also stressed that growth in aggregate demand needs to remain subdued to reduce capacity pressures and bring inflation back to target
Reflecting this assessment, all nine members agreed that tighter policy settings are required immediately. Officials again stressed that they will do what they consider necessary to deliver price stability and full employment, implying that they are ready to increase rates again if inflationary pressures do not start to moderate soon.
Market Consensus Before Announcement
With inflation and the economy running hot and the risks seen to the upside, the forecast is for a 25 bp rate hike.
Definition
The Reserve bank of Australia (RBA) announces its monetary policy with regard to interest rates on the first Tuesday of each month with the exception of January when it is on vacation. The RBA is the central bank of Australia and its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system.
Description
The Reserve Bank of Australia's (RBA's) main responsibility is monetary policy. Policy decisions are made by the Reserve Bank Board with the objective of achieving low and stable inflation over the medium term. Other responsibilities include maintaining financial system stability, while at the same time promoting the safety and efficiency of the payments system. The RBA regards appropriate monetary policy as a major factor contributing to the Australian dollar's stability, which in turn leads to full employment and the economic prosperity for Australia.
The RBA is unique among the central banks - it has two boards with complementary responsibilities. The Reserve Bank Board is responsible for monetary policy and overall financial system stability. The Payments System Board has specific responsibility for the safety and efficiency of the payments system.
The RBA sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.
The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.