Unfortunately the answer is still ‘UP’!
The Reserve Bank (RBA) will meet in November and December 2022 and then not again until February 2023, breaking over January 2023. I believe the RBA will raise interest rates by 0.25% in both November and December to take the official cash rate to 3.10%.
By February 2023 the full effects of 2022’s interest-rate rises will have properly worked their way through the economy and be clearer for, not only the RBA, but all to see.
RBA is committed
Be under no illusions that the RBA’s number 1 goal is to tame inflation stating,
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
Where interest rates go in Australia in 2023 and beyond is anyone’s guess—no one knows not even the RBA!
There are simply too many variables in the equation including; war in Ukraine, energy prices, covid zero in China, geopolitical implications, wage demands, inflation readings in other major countries and the consequent interest rate responses.
The fall in $AUD is inflationary
The fall in the Australian dollar ($AUD) is another area of inflationary concern for the RBA. The further it falls the more it increases the costs of our imported goods and services which flows through to our inflationary pressures.
The $AUD at 0.6300*, has mainly fallen because the gap between our interest rates and the USA’s has widened. Their higher interest rates are simply a more attractive investment alternative than Australia’s at the moment. For this reason if the USA’s Federal Reserve keeps raising interest rates, our RBA will be forced to follow somewhat.
The following RBA passage best summarises what the RBA is currently thinking,
“Members agreed that a further increase in the cash rate was necessary to achieve a more sustainable balance of demand and supply in the Australian economy. Price stability is a prerequisite for a strong economy and a sustained period of full employment. Given this, the Board’s priority is to return inflation to the 2–3 per cent range over time while keeping the economy on an even keel. Members saw the path to achieving this balance as a narrow one clouded in uncertainty.”
After presiding over one of the steepest catch-up, interest-rate rise scenarios in the world in 2022, and according to how the data comes in, the RBA will essentially be fine tuning in 2023.
Let’s see!
*As of Thursday 20 October 2022
Where next for interest rates?
Unfortunately the answer is still ‘UP’!
The Reserve Bank (RBA) will meet in November and December 2022 and then not again until February 2023, breaking over January 2023. I believe the RBA will raise interest rates by 0.25% in both November and December to take the official cash rate to 3.10%.
By February 2023 the full effects of 2022’s interest-rate rises will have properly worked their way through the economy and be clearer for, not only the RBA, but all to see.
RBA is committed
Be under no illusions that the RBA’s number 1 goal is to tame inflation stating,
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
Where interest rates go in Australia in 2023 and beyond is anyone’s guess—no one knows not even the RBA!
There are simply too many variables in the equation including; war in Ukraine, energy prices, covid zero in China, geopolitical implications, wage demands, inflation readings in other major countries and the consequent interest rate responses.
The fall in $AUD is inflationary
The fall in the Australian dollar ($AUD) is another area of inflationary concern for the RBA. The further it falls the more it increases the costs of our imported goods and services which flows through to our inflationary pressures.
The $AUD at 0.6300*, has mainly fallen because the gap between our interest rates and the USA’s has widened. Their higher interest rates are simply a more attractive investment alternative than Australia’s at the moment. For this reason if the USA’s Federal Reserve keeps raising interest rates, our RBA will be forced to follow somewhat.
The following RBA passage best summarises what the RBA is currently thinking,
“Members agreed that a further increase in the cash rate was necessary to achieve a more sustainable balance of demand and supply in the Australian economy. Price stability is a prerequisite for a strong economy and a sustained period of full employment. Given this, the Board’s priority is to return inflation to the 2–3 per cent range over time while keeping the economy on an even keel. Members saw the path to achieving this balance as a narrow one clouded in uncertainty.”
After presiding over one of the steepest catch-up, interest-rate rise scenarios in the world in 2022, and according to how the data comes in, the RBA will essentially be fine tuning in 2023.
Let’s see!
*As of Thursday 20 October 2022
by Boris Sfiligoi
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