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RBA Update



The Reserve Bank has kept its cash rate target at 0.1 per cent, as it watches the unfolding economic fallout from Russia's invasion of Ukraine.


Key points:

  • The official cash rate remains at 0.1 per cent

  • RBA says the war in Ukraine is a major new source of uncertainty

  • Inflation expected to rise on the back of higher petrol prices and energy costs

  • It means the benchmark official interest rate has been steady at 0.1 per cent for 17 months.


In a statement, RBA Governor Philip Lowe said the global economy was continuing to recover from the pandemic, but Russia's aggression in eastern Europe had complicated things.


"The war in Ukraine is a major new source of uncertainty," he said.


"Inflation in parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of strong demand.


"The prices of many commodities have increased further due to the war in Ukraine.


"Bond yields have risen over the past month and expectations of future policy interest rates have increased."


With the world's energy system still heavily dependent on fossil fuels, analysts said the war in Ukraine would send a wave of inflation over the global economy.


Just last month, the RBA wrapped up its $350 billion bond-buying program citing better-than-expected economic data and rising inflation.


However, on Tuesday Dr Lowe said the RBA was forecasting underlying inflation to reach 3.25 per cent in coming quarters.


He warned consumer inflation would "spike higher than this" due to higher petrol prices resulting from global developments.


"How long it takes to resolve the disruptions to supply chains is an important source of uncertainty regarding the inflation outlook, as are developments in global energy markets," Dr Lowe said.


He also noted that housing prices were still rising strongly in Australia, "although the rate of increase has eased in some cities."


It comes as CoreLogic data show national property prices rose again last month, by 0.6 per cent, although Sydney dwelling values recorded their first decline in 17 months, by a slight 0.1 per cent.


"Not much of a decline, the equivalent of about $1,000 at the median value level, but I think it's definitely a sign that the market is shifting slightly from a sellers' to a buyers' market," CoreLogic's head of Australian research Eliza Owen told ABC News.

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