RBA is ready to slow down the pace of interest rate hikes

Based on the results of the policy meeting, which was held at the beginning of the month, the Reserve Bank of Australia (RBA) stated its intention to slow down the monetary policy tightening cycle by only a 25-basis-point increase in rates.

According to Bloomberg, at their last meeting, the RBA’s representatives considered two options of rate hikes — by 25 or 50 basis points. As a result, the first option was chosen due to the fact that a full effect of the rapid rate growth since spring will manifest itself gradually, not at once. 

The minutes of the meeting released on Tuesday stated that one of the main arguments for increasing rates only by a quarter of a percentage point was the Board of Directors’ intention to act consistently and take into account the previous rate shifts at a rapid pace in a short period of time. At the same time, the central bank’s officials continue to focus on bringing inflation back to its target level of 2–3%.

In order to achieve the objective, the RBA’s monetary policy tightening cycle might be stretched out for a longer period of time. However, the pace of this tightening is likely to be slowed down. It’s also expected that consumer-price growth will reach the peak of 8% by the end of the year.

Some analysts and economists forecast yet another interest rate hike by 25 basis points next month after the RBA’s meeting. In this case, the interest rate will rise up to 3.1%.