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Highlights
- Following an unexpected jump in inflation, investors and economists are keeping a close eye on the Reserve Bank of Australia’s (RBA) monetary policy meeting on Tuesday.
- Earlier, the RBA had maintained that it won’t raise cash rate until inflation was sustainably within its 2 to 3% target.
- The RBA last cut its official cash rate to a record low of 0.1% in 2020 to boost the economy during COVID-19 pandemic.
Following an unexpected jump in inflation, investors and economists are closely tracking the Reserve Bank of Australia’s (RBA) monetary policy meeting on Tuesday. The RBA had, earlier, continuously maintained that its cash rate would not be raised until inflation was sustainably within its 2 to 3% target, which it didn’t expect to happen before 2024.
The RBA last cut its official cash rate to a record low of 0.1% in 2020 to boost the economy during COVID-19 pandemic.
However, the Australian core inflation rose at its fastest annual pace since 2015 in the September quarter. Data from the Australian Bureau of Statistics (ABS) showed that core inflation jumped to 2.1%, pipping Reuters’ forecast of 1.8%.
Following the inflation data release, RBA deputy governor Guy Debelle said: "A little bit more inflation is welcome." However, he didn’t disclose the policy outlook ahead of the meeting. Even before the inflation data was released, there were speculations about the early interest rate hike amid surging oil prices and the coronavirus pandemic-induced supply disruptions.
Image Source: © Lucidwaters | Megapixl.com
CBA on rate hike
According to a recent forecast by Commonwealth Bank of Australia (CBA), the RBA will raise the key rate to 0.25% in November 2022 from the current rate of 0.1%. The bank also expects this rate hike to be followed by a 25-basis point rise in December. There may be further two to three hikes over 2023 and 2024, CBA added.
CBA also expects the economy to expand by 3.5% this year, against a previous 3%, amid rapid vaccination take up. The bank also increased its growth forecast for 2022 to 4.4% from earlier 4%.
What NAB says
National Australia Bank (NAB) economists have brought forward their forecast date of the first official rate hike to middle of 2023. However, NAB predicts rates will rise fast to 1.75-2% by 2024-end.
New Zealand central bank raises rates
Australia’s neighbour New Zealand just saw a 25-basis point rate hike for the first time in seven years. The central bank also hinted at further tightening to control the rising inflation and booming housing market.
Norway, the Czech Republic, and South Korea have already raised rates.
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