Tuesday is set to witness a significant move by the Reserve Bank of Australia (RBA) as it responds to the ongoing challenge of persistently high inflation. The RBA is anticipated to raise its interest rate by 25 basis points, bringing it to 4.35 percent, in a bid to address the inflationary pressures gripping the nation’s economy.

The latest figures indicate a slight slowdown in inflation, with May recording a rate of 5.6 percent compared to April’s 6.8 percent. Despite this dip, the inflation rate continues to remain well above the RBA’s target range of 2-3 percent. This development has raised concerns among economists, signaling the possibility of further tightening measures in the future.

Market experts have closely monitored economists’ predictions ahead of the July 4 RBA meeting, and the outlook appears to be mixed. Out of 31 economists surveyed, 16 anticipate the interest rate to rise to 4.35 percent, while the remaining 15 predict the rate to remain unchanged. Among the major local banks, ANZ, NAB, and Westpac are among those that foresaw a rate increase, whereas CBA predicted no change.

Looking ahead, the majority of economists, 25 out of 29, are anticipating the central bank to raise rates further to 4.60 percent in August. The continued elevation of inflation has not only impacted Australia’s economy but has also led analysts to predict that other major global central banks will also opt for tighter monetary policies in response.

According to forecasts, around half of the economists surveyed, specifically 16 out of 30, project that interest rates will reach or exceed 4.60 percent by the end of September. It is expected that rates will then stabilize at 4.60 percent until the conclusion of 2023.

The inflation outlook for Australia is cautiously optimistic, with eleven out of sixteen economists predicting a marginal decline in core inflation by the end of the year. However, projections indicate that inflation will still average 5.7 percent this year and 3.2 percent in the following year.

Amidst these inflationary pressures, the economic growth forecast for Australia remains relatively modest. Economists anticipate an average growth rate of 1.5 percent for this year, and a slight dip to 1.4 percent in 2024.