Already a subscriber?The Reserve Bank of Australia board is now only one more bad inflation report away from doing what it really doesn’t want to: raise interest rates before the federal election., up from 3.6 per cent in April and above market economist expectations of 3.8 per cent.
The RBA’s preferred measure of underlying inflation has been stuck around 4 per cent since December, well above the midpoint of its 2 to 3 per cent target band.Some $23 billion of annual income tax cuts starting in July and recent expansionary federal and state government budgets will further add to inflation pressures.
This will give the RBA a more reliable read of detailed quarterly inflation data, along with an employment report due before the board meeting.that while the RBA board was not keen to increase the 4.35 per cent cash rate, she knows the central bank may have to move if inflation is materially stronger than the bank’s forecast.
“The board does need to be confident that inflation is moving sustainably towards target, and it will do what is necessary to achieve that outcome.”The RBA’s 4.35 per cent cash rate was “particularly restrictive” for households, but less so for larger businesses,Kent said the RBA estimated the nominal neutral cash rate – where it is neither contractionary nor stimulatory – to be about 3.5 per cent.
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