Why do nervous central bankers closely watch RBA?

In its latest meeting, the Reserve Bank of Australia hiked the key interest rate by 50 basis points to 1.85%. According to analysts, the RBA will likely raise again in September but with a 25 bps rate hike. They see the rate peak at 3.10% by early next year.

August’s announcement dropped previous references to withdrawal of extraordinary monetary support. Instead, this phrase was replaced with more standard language that the increase in interest rates is a further step in the normalization of monetary conditions in Australia.

The new language adopted by policymakers and RBA Minutes hints that the RBA officials believe it is now a bit further along the monetary tightening path, and perhaps does not need to move at an accelerated 50 bps pace anymore, rather there is a trend to adopt a more dovish stance


The RBA indicated it is seeking to bring inflation down in a way that keeps the economy on an “even keel”. This language is also consistent with a more measured pace of rate hikes. Against this background, it is now expected that the central bank could revert to a steady pace of consecutive 25 bps rate hikes at its next several meetings in September, October, November, December and February, which would bring the Cash Rate to 3.10% by early 2023.