RBA Monetary Policy 2022

• The Bank’s central forecast for GDP growth had been revised down a little, with growth of around 3 per cent expected in 2022 and 1½ per cent in 2023 and 2024. 

Fcific approach to forward guidance had presented substantial communication challenges, which subsequently attracted extensive criticism. The forward guidance had been state-based – that is, with reference to economic conditions – but at various times had included a time-based element.

Forward Guidance

• Where forward guidance is appropriate, ordinarily it will be qualitative in nature. Given the inherent uncertainty in the world, forward guidance will generally be flexible and conditionality will likely focus on the Board’s policy objectives – namely, inflation and unemployment – rather than the drivers of these variables (e.g. wages). It will typically focus on the short term and be narrative in nature
• Forward guidance on interest rates will not always be provided, although the Board will continue to outline how monetary policy settings will be adjusted in response to evolving economic conditions.
• The Board will continue to publish forecasts on a regular basis, along with an assessment of the various risks. The Board does not intend to publish its own forecasts of the expected policy path.
• When policy rates are at, or near, the effective lower bound, a stronger form of forward guidance will be considered, taking into account lessons on the benefits of flexibility and using scenarios to prepare for a range of possible outcomes.

Monetary Policy

• Given the importance of avoiding a price-wage spiral, the Board will continue to pay close attention to both the evolution of the price-setting behaviour of firms and labour costs in the period ahead.
• Members again considered two options for the size of the increase in the cash rate: a 25 basis point increase or a 50 basis point increase.

• In considering the size of the increase, members also discussed the value of the Board acting in a consistent manner. Having moved by 25 basis points in the previous month, they considered whether the flow of information since then warranted a 50 basis point move at the November meeting. The Board agreed that acting consistently would support confidence in the monetary policy framework among financial market participants and the community more broadly. 

• Given that the cash rate had been increased significantly since May and the full effect of that increase lay ahead, members concluded that the case to increase the cash rate by 25 basis points at the present meeting was the stronger one. Acknowledging the uncertainty, members did not rule out returning to larger increases if the situation warranted.