RBA Board of Directors Assessment

■ The Reserve Bank of Australia (RBA) has raised interest rates for the second consecutive meeting, bringing the policy rate to the highest level among major developed countries.  

■ Balancing inflationary pressures and slowing growth, the RBA is expected to cautiously proceed with further rate hikes. 
 
At its Board of Governors meeting on the 16th and 17th, the RBA decided to raise the policy rate by 0.25 percentage points to 4.10%. This is the second consecutive rate hike, but four of the nine members supported keeping the rate unchanged, ultimately passing the decision by a narrow margin. The statement explained the reasons for the consecutive rate hikes, stating that "risks, including inflation expectations, have shifted further to the upside, thus justifying the decision to raise the policy rate." Regarding future trends, the statement noted that "if the Middle East conflict becomes protracted or escalates, global energy prices may face further upward pressure," and that "rising prices and prolonged uncertainty could be factors that depress the economic growth rates of Australia's major trading partners and the country itself." Furthermore, the statement emphasized that "future decisions will closely monitor changes in data, outlook, and risk assessments." The statement also noted that the RBA will "pay close attention to the developments in the global economy, financial markets, domestic demand, and the outlook for inflation and the labor market," and that "the Governing Council will take the measures it deems necessary to achieve its objectives," suggesting the possibility of further interest rate hikes. 

 
RBA President Bullock stated at a press conference that the differences of opinion reflect not policy direction, but timing. All Governing Council members agreed that further interest rate hikes are necessary and actively discussed whether to maintain the rate until the May meeting. In the short term, the probability of a further rate hike to 4.35% at the next Governing Council meeting on May 4th and 5th exceeds 45%, the probability of a rate hike at the June 15th and 16th meeting exceeds 65%, and the expectation of a rate hike to 4.60% by the end of the year exceeds 55%. The current robust labor market also supports further rate hikes. If the RBA raises rates by 0.25 percentage points twice more this year, its interest rate level will be more prominent among major developed countries. While Australia is an energy exporter of coal and liquefied natural gas (LNG), accelerating and prolonged inflation could drag down domestic demand, particularly personal consumption and equipment investment, which have previously supported economic growth. Australia will release its February employment data on the 19th and the Consumer Price Index (CPI) on the 24th, but the impact of the Middle East conflict on employment and prices will only be further observed with the March data to be released in late April. Given the uncertainty surrounding the Middle East situation, the RBA is expected to focus on both inflationary pressures and slowing economic growth for some time, proceeding cautiously with subsequent interest rate hikes.