The Reserve Bank of Australia (RBA) has released its Statement on Monetary Policy following its board meeting on 7 February.
This revealed the RBA had revised its central forecast for trimmed mean inflation to 3.25% over the 12 months to June 2024, down from 3.5%.
The central bank was now expecting core inflation to return to the high-end of its target range (3%) by the end of 2024.
“The easing in global price pressures already underway is expected to flow through to domestic prices over time,” the central bank noted.
“In addition, slower growth in domestic demand and a moderation in labour market conditions are expected to reduce domestic inflationary pressures.”
The revision to its inflation forecasts follows its latest hike to the official cash rate, which was lifted by 25bps earlier this week to 3.35% — the highest since September 2012.
Since commencing the tightening cycle in May 2022, the RBA had actioned nine interest rate hikes, lifting the cash rate by a cumulative 2.25%.
“Maintaining a steady pace of increases over several months has given the Board the time to assess the flow of incoming data and any shifts to the outlook that it may imply,” the RBA stated.
But the RBA suggested further hikes were in the offing, despite risks of sharper-than-desired weakness in economic activity.
The central bank acknowledged the “path to achieving a soft landing remains narrow”, but stressed curbing inflation remained its priority.
“In assessing how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market,” the RBA stated.
“It remains resolute in its determination to return inflation to target and will do what is necessary to achieve this.”
Markets were expecting at least one more hike to the cash rate before a prolonged hold cycle.
On the hawkish side of the spectrum, Deutsche Bank economist Phil O’Donaghoe and Bank of America analysts projected a terminal cash rate of 4.1%.
Meanwhile, AMP Capital chief economist Shane Oliver and ING Research economist Robert Carnell said the cash rate was near its peak, adding the central bank could cut rates by the end of the year to stimulate a slowing economy.
