Home Insights Interest rates are going up, but not as soon as many are expecting

Interest rates are going up, but not as soon as many are expecting

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As the economy continues to outperform, many interest rate watchers are tipping interest rate hikes in the coming months. This is why RBA is not in a hurry.

This week was a big week for RBA policy. At its monthly board meeting on Tuesday, the RBA ended a bond purchase program, also known as “quantitative easing,” aimed at curbing long-term interest rates. On Wednesday, Governor Philip Lowe outlined the RBA’s updated economic forecasts, which were fully released on Friday.

Higher-than-expected performance and higher inflation rates in the Australian economy Many have come to expect higher interest rates as early as mid-year. Even RBA upgraded forecasts Inflation this year is above the 2-3% target range.

However, the RBA clearly shows the case of waiting.

The economic outlook remains very uncertain. Inflation was boosted by supply turmoil and rising demand for commodities, as people’s spending has undergone the greatest changes since distribution during World War II.

This is a good policy for central banks, which means that the first rate hike may not be until 2023.

The RBA is waiting for inflation to continue to stay within its target range once these supply and demand turmoil subside. They are also waiting for wage growth to match the previously lacking inflation target.

While other countries are already trying to raise interest rates, Rowe outlined Australia as a time benefit. Inflation in Australia under underlying conditions is now in the middle of the target band, well below the outcome of other economies.

This is a good approach, but in stark contrast to the pre-pandemic results.

Inflation in Australia has been below the RBA target for many years. Given that current inflationary factors, such as soaring gasoline prices, are temporary, the risk of an inflation breakout that leads to expectations of wage setting seems low.

The RBA is amazed at how well the economy responded to aggressive monetary and fiscal stimulus measures during the pandemic, and how rapidly the unemployment rate fell.

We are pleased that Governor Rowe is willing to withstand some inflation by maintaining the monetary side of this stimulus to reduce unemployment to less than 4%. This result is not seen in 50 years.

Additional report by PropTrack economist Angus Moore.

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