Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Australia's central bank flags more rate rises, 75 bp moves unlikely

Economy Jun 20, 2022 11:25PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Two women walk next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018. REUTERS/Daniel Munoz/File Photo

By Wayne Cole

SYDNEY (Reuters) -Australia's top central banker on Tuesday flagged a lot more policy tightening ahead as rates were still "very low" and it was important that higher inflation did not feed into public expectations and wage claims.

Yet, Reserve Bank of Australia (RBA) Governor Philip Lowe also played down the chance of rates being increased by a super-sized 75 basis points and took issue with market pricing of rates reaching as high as 4% by year end.

Lowe warned price pressures continued to build both globally and domestically and inflation was now seen reaching 7% by the end of the year, up from a previous forecast of 6%.

That would be the highest pace in decades and far above the RBA's long-term target band of 2-3%.

"As we chart our way back to 2 to 3% inflation, Australians should be prepared for more interest rate increases," warned Lowe in a speech. "The level of interest rates is still very low for an economy with low unemployment and that is experiencing high inflation."

The official cash rate is currently at 0.85% having been lifted by 50 basis points earlier this month following an initial quarter-point hike in May.

Minutes of its June meeting out on Tuesday, showed the central bank's board discussed raising the cash rate by either 25 basis points or 50 basis points and chose the latter because policy needed to be "normalised" to head off inflation.

Since then, the U.S. Federal Reserve has hiked by 75 basis points fuelling speculation the RBA might match it.

"At the moment, the decision we will take is either 25 or 50 again at the next meeting," Lowe said when questioned on it.

He also noted that matching market wagers of 4% by year end would require the sharpest tightening cycle in modern RBA history and would badly hit consumer spending.

"I think it would slow the economy a lot," Lowe said. "I don't think it is particularly likely."

Investors responded by pricing out the chance of a hike of 75 basis points in July and trimming projections for the end of the year, though rates are still seen at 3.5%.

Lowe emphasised the RBA would be watching how household spending responded to rising borrowing costs given real wages were falling and house prices were easing from their highs.

Still, he said it was important that inflation expectations remain anchored around 2-3% and that higher prices now did not feed through to expectations of rising inflation in the future.

"Higher interest rates have a role to play here, by helping ensure that spending grows broadly in line with the economy's capacity to produce goods and services," said Lowe.

Australia's central bank flags more rate rises, 75 bp moves unlikely
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email