RBA Warns Of Stringent Measures To Tackle Persistent Inflation

The Reserve Bank of Australia (RBA) may push for more stringent measures, including raising interest rates, due to the slow decline in the inflation rate.

According to the Minutes of RBA's Monetary Policy Meeting released on Tuesday, despite a slight decline in the underlying inflation rate, it remained persistently high outside the target range of 2%-3%. The central bank revised its inflation rate forecast, now extending the target timeframe to 2026. Previously, the RBA had anticipated reaching the target by 2025.

The RBA has warned that if the inflation rate did not decline, it would increase the interest rate, Sky News reported.

The RBA indicated it was prepared to hold inflation rates "possibly for an extended period" while inflation remains "broadly on track" to fall below 3% in 2025.

The inflation rate keeps rising due to a persistent domestic demand, which is a challenge for the RBA. In addition to uncertainties in the job market, household savings and global political events have impacted the central bank's predictions negatively.

The RBA board that met in the last two days have, however, stressed they would work to lower the inflation rate, adding it was "not possible to either rule in or rule out" any policy changes.

"Members affirmed that their strategy was still to bring inflation back to target within a reasonable timeframe," the RBA minutes stated.

Though the board discussed about implementing more measures, it decided to keep the interest rate at 4.5%. Keeping the cash rate steady for a longer period than the market pricing should bring the inflation rate within the target in the RBA's expected timeframe, reported Business Times.

The board also discussed the need to remain vigilant to the "upside risks to inflation".

"Monetary policy will need to be sufficiently restrictive until members are confident that inflation in moving sustainably towards the target range."

Financial pundits expect the RBA not to raise the interest rate this year.

While inflation remains high in Australia, it showed signs of easing globally. The RBA increased the interest rates more slowly, with its benchmark rate about one percentage point lower than in other countries. The reason behind this approach is to protect the recent gains in the labor market while tackling inflation.