RBA raises rates by 25 basis points as expected, signals more to come

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By Ambar Warrick

Investing.com– The Reserve Bank of Australia (RBA) raised its benchmark rate as expected on Tuesday, indicating that future rate hikes will largely depend on the path of inflation and economic growth as it tries to keep the economy “even”. keel.”

The RBA increased it by 25 basis points to 3.10%, meeting market expectations. They reacted positively to the move, rising 0.5% against the dollar to 0.6733.

Tuesday’s raise, the RBA’s final meeting for the year, marks a cumulative increase of 300 basis points in 2022 as the central bank took action to combat rising inflation.

But the bank now expects inflation to rise further in the near term, while economic growth is likely to slow. , which grew 6.9% year-on-year in November, is expected to end the year at about 8%.

The RBA had slowed the pace of rate hikes in recent months as it struggled to strike a balance between fighting inflation and avoiding economic destruction.

The central bank’s main priority is “restoring low inflation and returning inflation to the 2-3% range over time,” Governor Philip Lowe said in a prepared statement. He added that the RBA’s forecast is for CPI inflation to rise slightly above 3% in 2024.

Recent data suggests that a post-COVID boom in the Australian economy now appears to have cooled. The country registered an unexpected event in the September quarter, with a drop in export value and slowing government spending likely weakening the country’s gross domestic product during the quarter.

The RBA forecasts annual growth of about 1.5% in 2023 and 2024.

Data due on Wednesday is expected to show growth has cooled to quarterly growth of 0.7% in the September quarter from 0.9% in the previous quarter. But the current account deficit could herald an even bigger decline.

An economic slowdown in China, Australia’s largest trading partner, has weighed heavily on the economy as demand for mainland commodity exports cooled.

Still, consumer spending in the country has remained robust this year, helped largely by a tight labor market. This has given the central bank sufficient leeway to continue raising interest rates and is likely to continue to support the economy in the near term.



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