Statement by Philip Lowe, Governor: Monetary Policy Decision - October 2022 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2022-10-04

Media Release
Statement by Philip Lowe, Governor: Monetary Policy Decision
4 October 2022
At its meeting today, the Board decided to increase the cash rate target by 25 basis points to
2.60 per cent. It also increased the interest rate on Exchange Settlement balances by
25 basis points to 2.50 per cent.
The Board is committed to returning inflation to the
per cent range over time. Today’s increase in
interest rates will help achieve this goal and further increases are likely to be required over the
period ahead. The cash rate has been increased substantially in a short period of time. Reflecting this,
the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook
for inflation and economic growth in Australia.
As is the case in most countries, inflation in Australia is too high. Global factors explain much of this
high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is
also playing a role.
A further increase in inflation is expected over the months ahead, before inflation then declines back
towards the
per cent range. The expected moderation in
inflation next year reflects the ongoing resolution of global supply-side problems, recent declines in
some commodity prices and the impact of rising interest rates. Medium-term inflation expectations remain
well anchored, and it is important that this remains the case. The Bank’s central forecast is for
CPI inflation to be around 7¾ per cent over 2022, a little above 4 per cent over 2023
and around 3 per cent over 2024.
The Australian economy is continuing to grow solidly and national income is being boosted by a record
level of the terms of trade. The labour market is very tight and many firms are having difficulty hiring
workers. The unemployment rate in August was 3.5 per cent, around the lowest rate in almost
50 years. Job vacancies and job ads are both at very high levels, suggesting a further decline in
the unemployment rate over the months ahead. Beyond that, some increase in the unemployment rate is
expected as economic growth slows.
Wages growth is continuing to pick up from the low rates of recent years, although it remains lower than
in other advanced economies where inflation is higher. Given the tight labour market and the upstream
price pressures, the Board will continue to pay close attention to both the evolution of labour costs and
the price-setting behaviour of firms in the period ahead.
Price stability is a prerequisite for a strong economy and a sustained period of full employment. Given
this, the Board’s priority is to return inflation to the
per cent range over time. It is seeking to
do this while keeping the economy on an even keel. The path to achieving this balance is a narrow one and
it is clouded in uncertainty.
One source of uncertainty is the outlook for the global economy, which has deteriorated recently. Another
is how household spending in Australia responds to the tighter financial conditions. Higher inflation and
higher interest rates are putting pressure on household budgets, with the full effects of higher interest
rates yet to be felt in mortgage payments. Consumer confidence has also fallen and housing prices are
declining after the earlier large increases. Working in the other direction, people are finding jobs,
gaining more hours of work and receiving higher wages. Many households have also built up large financial
buffers and the saving rate still remains higher than it was before the pandemic.
Today’s further increase in interest rates will help achieve a more sustainable balance of demand and
supply in the Australian economy. This is necessary to bring inflation back down. The Board expects to
increase interest rates further over the period ahead. It is closely monitoring the global economy,
household spending and wage and price-setting behaviour. The size and timing of future interest rate
increases will continue to be determined by the incoming data and the Board’s assessment of the
outlook for inflation and the labour market. The Board remains resolute in its determination to return
inflation to target and will do what is necessary to achieve that.
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