RBA interest rates: Multiple interest rate rises needed to squash inflation

Economists have warned there is a good chance that the Reserve Bank of Australia will need to raise interest rates multiple times to squash persistent inflation, jeopardising its hopes for a soft economic landing.

Ms Auld said there was resilience in the economy from a low unemployment rate of 4 per cent, $23 billion of imminent annual income tax cuts and expansionary budgets from the federal and state governments. “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.”

“In the RBA’s modelling, a 25 basis point hike only reduces inflation by about 5 basis points year-on-year and that doesn’t solve the inflation problem.” Mr Fabo forecasts the RBA’s preferred measure of underlying inflation to be 1 per cent in the three months to June 30, 0.2 of a percentage point above the RBA’s May forecast.That would imply underlying inflation was running at an annualised rate of 4 per cent for the past six months.

Money market traders are pricing in about a 40 per cent chance of a 0.25 of a percentage point rise in August and about a 60 per cent chance by September.found government budgets would add more than $50 billion of stimulus into the economy in the next 12 months thanks to growing deficits.

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