Australian Reserve Bank hints at "interest rate hike."
Economic policies remain unchanged, Australian Reserve Bank hints at "interest rate hike." The Reserve Bank of Australia plans to keep interest rates unchanged at 4.1% in the final meeting under the presidency of Philip Lowe. This decision aligns with the growing indications that its tightening policy is slowing down inflation and limiting the damage to the economy.
It is expected that the Reserve Bank of Australia will maintain the cash rate unchanged at 4.1% on Tuesday, due to the easing demand resulting from the slowdown in elevated borrowing costs seen in the past 11 years. Lowe describes the policy as being in the "calibration phase," during which the board might make minor adjustments based on economic data.
The latest data shows that Australia's inflation rate is better than expected, standing at 4.9%, a decrease from the peak of 8.4% in December 2022. This suggests that the Reserve Bank of Australia can maintain its policies unchanged for a period of time. Meanwhile, a few days ago, the preferred core inflation measure of the US Federal Reserve recorded its smallest consecutive increase since the end of 2020.
Compared to other Western developed countries, Lowe's actions are more cautious. He has raised rates by 4 percentage points, whereas New Zealand and the United States have increased theirs by 5.25 percentage points each. Despite the persistent higher price growth and an expected return of price increases to the target range of 2% to 3% by the end of 2025, the Reserve Bank of Australia has paused its rate hikes in the past two meetings.
This approach reflects Lowe's awareness of the heavy debt burden on Australian households and his desire for a smooth transition in the AUD 2.3 trillion (USD 1.5 trillion) economy. The Reserve Bank Governor aims to preserve the benefits in the labor market driven by massive monetary and fiscal stimulus during the pandemic era.
However, currency markets suggest that the Australian central bank is likely to maintain its policies unchanged for the remaining time of the year, with a complete pricing adjustment expected only by the end of 2024. The Reserve Bank of Australia is predicted to hike rates once again to reach a cash rate of 4.35%, with a shallow tightening cycle anticipated to commence in May of the following year. Lowe will elaborate on the reasons for the rate hike during this week and maintain a tightening stance. The newly appointed Governor, Michele Bullock, stated last week that the central bank "may still need to raise rates again," adding that decisions will be made on a monthly basis.
Over the past year, the unemployment rate has hovered between 3.5% and 3.7%. As a crucial pillar of the economy, the housing market has rebounded, and businesses have shown strong profitability in the first half of the year. However, consumer confidence remains in a significantly pessimistic territory, and retail sales have stagnated over the past year, indicating that higher borrowing costs and inflation have already impacted households.
A day after the Reserve Bank of Australia's meeting, the country will release Gross Domestic Product (GDP) data for the quarter ending in June. This data may reveal moderate economic momentum, primarily driven by exports.
It is expected that the Reserve Bank of Australia will maintain the cash rate unchanged at 4.1% on Tuesday, due to the easing demand resulting from the slowdown in elevated borrowing costs seen in the past 11 years. Lowe describes the policy as being in the "calibration phase," during which the board might make minor adjustments based on economic data.
The latest data shows that Australia's inflation rate is better than expected, standing at 4.9%, a decrease from the peak of 8.4% in December 2022. This suggests that the Reserve Bank of Australia can maintain its policies unchanged for a period of time. Meanwhile, a few days ago, the preferred core inflation measure of the US Federal Reserve recorded its smallest consecutive increase since the end of 2020.
Compared to other Western developed countries, Lowe's actions are more cautious. He has raised rates by 4 percentage points, whereas New Zealand and the United States have increased theirs by 5.25 percentage points each. Despite the persistent higher price growth and an expected return of price increases to the target range of 2% to 3% by the end of 2025, the Reserve Bank of Australia has paused its rate hikes in the past two meetings.
This approach reflects Lowe's awareness of the heavy debt burden on Australian households and his desire for a smooth transition in the AUD 2.3 trillion (USD 1.5 trillion) economy. The Reserve Bank Governor aims to preserve the benefits in the labor market driven by massive monetary and fiscal stimulus during the pandemic era.
However, currency markets suggest that the Australian central bank is likely to maintain its policies unchanged for the remaining time of the year, with a complete pricing adjustment expected only by the end of 2024. The Reserve Bank of Australia is predicted to hike rates once again to reach a cash rate of 4.35%, with a shallow tightening cycle anticipated to commence in May of the following year. Lowe will elaborate on the reasons for the rate hike during this week and maintain a tightening stance. The newly appointed Governor, Michele Bullock, stated last week that the central bank "may still need to raise rates again," adding that decisions will be made on a monthly basis.
Over the past year, the unemployment rate has hovered between 3.5% and 3.7%. As a crucial pillar of the economy, the housing market has rebounded, and businesses have shown strong profitability in the first half of the year. However, consumer confidence remains in a significantly pessimistic territory, and retail sales have stagnated over the past year, indicating that higher borrowing costs and inflation have already impacted households.
A day after the Reserve Bank of Australia's meeting, the country will release Gross Domestic Product (GDP) data for the quarter ending in June. This data may reveal moderate economic momentum, primarily driven by exports.