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RBA insists interest rates are staying put but economists are casting doubt

27 October 2021

The Reserve Bank has long been staunch on interest rates remaining where they are until 2024 at least, but economists are starting to disagree.

Markets and economists are indicating they believe the booming property market and energy sector will get the inflation rate back to a sustainable level that sits in the RBA’s target band.

So much so that a survey by The Australian Financial Review of 26 economists found average expectations are of a rate hike around the middle of 2023, which would be the first increase in more than ten years.

This week the RBA once again said it was not going to lift the official cash rate until they see inflation hit a sustainable 2-3 per cent level, a line they have persisted with for some time now.

“Despite Tuesday’s minutes, we doubt markets will believe the RBA’s promise to not begin lifting rates until 2024,” RBC Capital Markets’ chief economist Su-Lin Ong told AFR.

“The inflation picture is complex with less transitory elements in key economies with much tighter labour markets and rising wages (US and UK).”

BIS Oxford Economics chief economist Sarah Hunter said she expects good recovery from eastern states economies following their June outbreak of the Delta COVID variant.

“The labour market indicators look very promising for a rapid rebound now that restrictions are easing and we expect the number of workers that are currently effectively unemployed or underemployed to fall in the first half of 2022 and this would translate into upward pressure on wages from late 2022,” she told AFR.

Warren Hogan from Judo Bank said he could see the RBA making a move on rates as early as November next year.

“I am expecting wages and inflation to be sustainably in the RBA’s target band by Q3 2022 as a strong economic rebound in 2022 combined with labour shortages and global inflation pressures is expected to force a change of forecast from the RBA,” he said.

The Reserve Bank is also under pressure to review its inflation target, after the Organisation for Economic Co-operation and Development and the International Monetary Fund both threw their support behind a review of the central bank for failing to achieve their inflation target for so long.

 

https://www.afr.com/markets/debt-markets/tug-of-war-between-rba-and-economists-on-interest-rate-hike-20211019-p5914o

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