RBA assesses 4.8% rate peak in policy path

The Reserve Bank of Australia has considered an alternative policy path, with the key interest rate peaking at 4.8%, a level that would bring inflation back to 2% by the end of 2024, according to internal documents released under a Freedom of Information Act request. -3% target level and avoid significant damage to the labor market. In the document, the bank assessed three alternative monetary policy paths in a March paper. The options discussed were technical assumptions based on quarterly economic forecasts released in February. They are, respectively, that interest rates are “climbing steadily”, that is, raising interest rates by 25 basis points at each meeting; %; “unchanged”, referring to the cash rate remaining unchanged at 3.35% in February until mid-2024. The document also showed that a peak rate of 4.8% could push unemployment from the current 3.5% to an assumed non-inflationary level of 4.5%, while narrowly avoiding a recession under the “Sahm recession” . A Sam-like recession occurs when the unemployment rate rises by more than 0.75 percentage points in a year.