Key facts
- Australia's central bank is monitoring the impact of higher interest rates and the global energy price shock.
- RBA Governor Michele Bullock stated that policy tightening is working, evidenced by falling housing prices.
- Bullock noted that recent rate hikes will not affect current inflation driven by oil and commodity prices.
- Consumer inflation was 4.2% in April, above the RBA's 2-3% target band.
- The RBA has raised interest rates three times this year to 4.35%.
Australia's central bank is closely monitoring economic conditions to assess how higher interest rates and the global energy price shock are impacting the economy. Reserve Bank of Australia Governor Michele Bullock stated that policymakers are observing signs that policy tightening is working, such as falling housing prices. However, she noted that recent increases in interest rates will not affect the current inflation trajectory, which has been influenced by rising oil and commodity prices. There are tentative indications that higher fuel costs may have been passed on to other goods and services, including new dwelling costs. Consumer inflation stood at 4.2% in April, exceeding the RBA's target band of 2% to 3%. The Australian economy experienced a sharp slowdown in the first quarter, with household consumption unexpectedly falling in April and the unemployment rate rising to a 4-1/2-year high of 4.5%. The RBA has increased interest rates three times this year, bringing the rate to 4.35%, to counter the global energy shock and fully reversing the policy easing from the previous year. The central bank now believes its monetary policy is well-positioned to address overseas developments. Current swap market expectations suggest a 7% probability of a fourth rate hike this month, with a move in August considered a 50/50 chance. A total of 23 basis points of tightening is priced in for the remainder of the year.