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Highlights
- RBA will be meeting this week for its last monetary policy decision for this year.
- As the new Omicron variant grips nations, speculations of lockdowns and a slowdown in economic growth are rife in the market.
- The RBA might shed some light on how and when a rate hike could potentially be executed in the coming months.
As the Reserve Bank of Australia’s (RBA) last monetary policy meet for the year is approaching closer, a wave of new forces has seeped into the economy that may influence the policy decision. This includes the influx of the Omicron variant and the slow but steady growth of the Australian economy. The RBA will be meeting on Tuesday, the 7th of December, for its monetary policy decision. Till then, it is imperative to highlight whether changing market forces would potentially be factored into this month’s discussion.
After sprucing up the monetary policy last month with some minor changes, experts do not expect any significant changes in the December monetary policy meeting. In the previous meeting, the central bank decided to scrap the target of 10 basis points for the April 2024 Australian government bond, introduced in March 2020.
The prior move was a continuation of the RBA’s efforts to slowly pull monetary stimulus out of the economy. However, with the September quarter GDP numbers exhibiting a contraction in the economy due to the COVID-19 lockdowns, the RBA could stay away from further contractionary measures for now.
ALSO READ: Australian economy posts smaller-than-expected contraction in Q3 2021
Threat from Omicron
The Omicron variant has sparked a global wave of fear and anticipation. If governments across the globe deem it to be a big enough threat, then a situation resembling the Delta variant could ensue across the infected regions. This means, massive lockdowns and a slowdown in economic growth in pandemic-stricken areas.
Then, the RBA might have to change its course of action to give a solution that better fits the economic state. Additionally, uncertainties surrounding the variant have already gripped the financial markets, resulting in weak investor sentiment. Thus, the upcoming policy decision might reflect any potential changes that the RBA could expect to arise following the Omicron variant outbreak.
RELATED READ: Omicron’s spread: How severely can it impact global recovery?
Cash rate hike on the cards?
Speculations of earlier-than-expected interest rate hikes are rife in the market. While expecting a rise in the cash rate in this month’s policy announcement might be premature, markets are pricing in such decisions by late 2022. However, with changing market dynamics, the economy could take a swift turn from its current position, compelling the RBA to further push back a rate hike further.
At the same time, economists remain hopeful that the RBA could potentially shed some light on how and when a rate hike will be executed in the coming months. This is especially significant given the RBA’s previous statement that the economic recovery has exceeded expectations since the Delta variant broke out in the country, and the targets for inflation could be met sooner than expected.
ALSO READ: How are world powers dealing with inflation?
Another factor making interest rates a topic of concern, yet again, is the rising inflation. The RBA has taken a dovish stance with regard to inflation. However, as inflation becomes a pressing issue, not just in Australia but globally, experts are hopeful that the RBA might tackle the issue in the latest policy meet. Such expectations are riding higher after the US Fed Chair recently admitted that inflationary forces are more profound than the central bank initially perceived them.
In a nutshell, this month’s meet may not bring forth any significant changes onboard. However, experts are relying on the RBA’s comments about ongoing events that could shape up a cash rate hike in the future.
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