RBA raises cash rate to 4.60% citing upside risks to inflation

The RBA Board has just unanimously voted to lift the official cash rate by 25bps to 4.6%. This is the highest official cash rate in 15 years.

Surprisingly, at least to me, the characterisation of upside risks to inflation was not retained in the statement. I had expected that it would be as it’s too much to expect that a single 25bps rate increase would counteract 1% above target inflation, elevated fuel prices and demand-led price pressures associated with the massive AI investment boom.

For me the key issue I was looking for guidance on was the prosects for a quick follow up rate rise at the November or December Board Meetings. My base case before today's decision was a back-to-back increase was likely to occur in November in the wake of what's likely to be a 1% or higher trimmed mean outcome for Q3 (we can refine that a bit after tomorrow's August CPI).

We'll likely get some more guidance on that during the Governor's Press Conference at 3.30PM (I do hope a journo asks if a 40bps or 50bps rise was considered), but for now today's Statement didn't sound super hawkish to me, more a continuation of the RBA's gradualism. I'd expect the Governor to sound more hawkish than the tightening statement. A bias to tighten further however clearly remains in play.

The further increase in interest rates today will add further pressure on households and businesses already facing accumulated large cost increases over many years, as well as current very high fuel prices. Other businesses will continue to benefit from the tailwinds associated with the AI investment boom, creating a very mixed outlook for the economy.