Reserve Bank of Australia raised the cash rate 25bp to 4.6%—the highest since
Nov 2011—and said recent developments mean further tightening may be necessary
to return inflation to target within a reasonable timeframe. The MPC considered
both holding rates and a 25bp rise and is reviewing the timing of meetings
around ABS inflation releases. Inflation remains high, short-term inflation
expectations are elevated, and some upside risks flagged in August have
materialised; AI-driven demand is accelerating global tech-product prices and
firms are passing on costs. Domestic output growth has slowed though Q2 was
slightly stronger than expected; activity and inflation outlooks remain
uncertain. The Middle East conflict has pushed global energy prices well above
assumptions used in August, supply disruptions persist, and fuel-price
pass-through to other goods and services is occurring. Labor-market conditions
have cooled as expected but unemployment remains low and the market is still
tight; the RBA sees no wage–price spiral. Financial conditions are currently
restrictive; if inflation falls further additional hikes may not be required,
but the committee will raise rates again if necessary to reduce excess demand
while not making recession its main expectation.
