The minutes of the RBA’s latest board meeting reaffirm that further interest rate rises may be necessary amid concerns falling productivity could embed high inflation. auspol ausbiz
The Reserve Bank of Australia will increase the cash rate again if price pressures remain elevated, with minutes from the May meeting revealing the central bank’s increasing concern that falling productivity could embed high inflation.earlier in the month after it unexpectedly lifted the cash rate to 3.85 per cent, with markets pricing virtually no chance of a move.
“Members also agreed that further increases in interest rates may still be required, but that this would depend on how the economy and inflation evolve,” the minutes said. The central bank does not expect inflation, which is currently at 7 per cent, to return to the top of its 2 to 3 per cent target band until June 2025.“Members observed that the forecast for inflation to return to the top of the target band by mid-2025 was predicated on productivity growth returning to around the modest pace recorded prior to the pandemic.Labour productivity, represented by the level of output produced per hour of work, is the same today as it was three years ago after falling 4.
The decision to raise the cash rate to 3.85 per cent in May also owed to fresh evidence that the labour market remained tight and inflationary pressures were “significant”.in the first three months of the year.“If these risks materialised, they would further delay the return of inflation to target, with the prospect of a damaging shift in inflation expectations.”
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