The economy is slowing but inflation remains persistent, the Reserve Bank of Australia stated today. The cash rate is now 4.60 per cent, the highest since 2011.
Mortgages are about to become even more expensive, the RBA announced today as it bumped the cash rate 25 basis points 4.60 per cent – the highest the country has seen in 15 years.
“The three increases in the cash rate target since the beginning of the year have tightened financial conditions and the economy appears to be slowing,” the RBA decision reads.
“But inflation is still too high and the Board judged that, in light of recent developments, a further tightening in financial conditions is warranted to support a return of inflation to target in a reasonable period.”
Of particular concern is that high inflation will become embedded, the Board noted. What it is looking for moving forward is “subdued aggregate demand,” meaning it is hoping households, businesses and governments ease spending growth.
“Since the previous meeting, some of the upside risks to inflation are materialising. There have been further disruptions to global oil supply and recent data suggest that growth and inflation in Australia have been higher than expected. Higher fuel prices have partially been passed through to prices of other goods and services. This inflation impulse is in addition to the effect of capacity pressures in the economy.”
The RBA hike comes on the back of new data that shows that Australians are tightening their belts.
“Higher fuel prices are squeezing household budgets and prompting consumers to start cutting back on some discretionary purchases,” says My Bui, an economist with AMP.
“Recreation and culture saw the biggest cut, followed by clothing and footwear and alcohol and tobacco.”
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