Difficult Decision Ahead Of The RBA, The Market Expects A 25bp Rate Hike
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The Reserve Bank of Australia (RBA) will be making its first monetary policy decision for the year next week.
Expectations
The Reserve Bank (RBA) Board meets next Tuesday and the most important item on the agenda will be the official interest rate decision.
In the last eight games, he has risen every time, by a record 300 basis points in total. He did this in an effort to slow down the rate of economic growth, and thus bring inflation back to the target range of 2-3 percent as quickly and painlessly as possible.
The Reserve Bank board is expected to raise interest rates by another 25 basis points on Tuesday, bringing the cash rate to 3.35%.
The expected 25 bp hike next week would be the ninth in a row. One of the reasons for the expected increase is the latest inflation data, which in December 2022 reached 1.9% quarterly and 7.8% annually.
The RBA will also release an updated economic outlook in its monetary policy statement due to be released on Friday.
Two extreme views
The February interest rate question is sure to spark heated debate. The RBA board will eventually discuss whether it needs to lay off tens of thousands more as it works to meet its inflation target. This is a serious decision.
Two extreme views will be confronted at the February RBA meeting. First, it would be unwise to raise interest rates as growth is clearly slowing down, all future inflation rates are falling and global growth is headed for a hard landing.
The second view from the RBA deliberations will scream “rate hike”. Inflation is at a 32-year high and well above target, the unemployment rate remains at a 48-year low - fueling wage growth - and there is a risk that inflation will not fall as expected unless the economy is further weakened by another interest rate hike.
Expectations of economists from Australian banks
Here's what big bank economists have to say about next week's RBA board meeting:
- ANZ said the strength of inflation cemented a 25 basis point RBA hike this month.
- NAB economist Taylor Nugent said the RBA is expected to deliver 25 basis points gains next week, thanks to a taming rate of inflation.
- Westpac expects the RBA to raise interest rates by 25 basis points in February and March, bringing the cash rate to 3.60%.
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Other data
To start the week, the Melbourne Institute will release its monthly inflation index.The Australian Bureau of Statistics will release December's international trade data on Tuesday. The RBA will also release an updated economic outlook in its monetary policy statement due to be released on Friday.
The unemployment rate is important
Next Friday, following Tuesday's board meeting, the RBA will release its most important quarterly monetary policy statement.
It will feature the RBA's updated economic outlook, with the focus - as always - on the RBA's calls on the unemployment rate and inflation.
The pressure on the labor market in recent times is important. The unemployment rate is at a multi-decade low, employment fell in December, and various future job demand indicators in business surveys, job postings and job vacancies tilt downward. This means, quite plainly and simply, that the best of the good news about unemployment is behind us.
The outlook for inflation will also be extremely important. The RBA had previously projected inflation to fall to 4.7 percent. at the end of 2023, and then to 3.2 percent. by the end of 2024, after reaching a peak of 8.0 percent.
Source: investing.com, rba,gov.au
