Interest rates

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It wasn’t long ago that the Reserve Bank were forecasting interest rates to stay put until 2024, but rapidly rising inflation has them on the verge of pulling the trigger within months.

It has quickly become a sure thing that rates will rise this year, the question now is when and by how much.

Gleaning hints from this week’s RBA meeting, forecasters are tipping a rate rise as early as June, with others thinking it more likely to come a bit later, around August.

Westpac chief economist Bill Evans told the ABC he noticed the RBA dropped the phrase “prepared to be patient” in their latest minutes.

“Before the decision to abandon ‘patience’, Westpac had expected the initial rate hike in the cycle to come in August,” he said.

“Now we expect a much shorter tightening cycle with consecutive rate hikes in June, July and August.

“That point would see the 2020 COVID emergency cuts unwound with the board likely to take a pause in September.

“Further hikes are now expected in October and November reaching 1.25 per cent by year’s end.”

Inflation figures come out on April 27 and the RBA has a target range between 2-3 per cent, but the new numbers are expected to smash that and come in at around 3-4 per cent.

The Reserve Bank wants to see wage growth accompany the rising inflation to ensure it is sustainable because if people don’t have more money in their pocket to pay for rising costs then demand drops off again.

Economists are now confident rates will rise but less sure about how many rises there’ll be and by how much.

The majority expects rates to rise by 0.15 percentage points as an opener, lifting the official cash rate to 0.25 per cent.

It would be the first time in over 11 years interest rates have not been either steady or falling each month.

Forecasters then envisage rates to be lifted another three times this year, taking interest rates to 1 per cent by the end of 2022.


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