Can a rate lift begin earlier than expected?
Team Veye | 12 Jul 2021
The Reserve Bank Board is responsible for formulating monetary policy. The Reserve Bank of Australia (RBA) reports its decision on where to set the benchmark interest rate. The Reserve Bank held the cash rate target at a record low of 0.1 per cent.
Since short term interest rates are an important determinant of currency valuation, investors watch interest rate changes closely. A reading that is stronger than a forecast is generally supportive (bullish) for the AUD, while a weaker forecast reading is generally negative (bearish) for the AUD.
RBA has repeatedly insisted that it won't lift the cash rate until the labour market is sufficiently tight to have started to generate wages growth of 3% or more and inflation sustainably in the 2-3% target zone. The continued closure of Australia's international borders is resulting in faster reductions in the unemployment rate. According to the Reserve Bank governor, Dr Lowe, the surprisingly strong economic growth rebound and large fall in unemployment had not translated to bigger pay increases.
Even before the pandemic, Wage growth in Australia had slowed down by more than it had in most other countries even though the real economy in Australia has been much better than in almost any other Western country
The labour market has started to outperform expectations and has weathered the withdrawal of JobKeeper well. But despite a strong result in the ABS’ latest labour force survey, the recovery has been erratic due to current lockdown and other related factors.
While the recovery has been stronger than expected there is still time to reach the RBA’s conditions for a rate hike. It is expected that economic recovery gathers a faster pace and RBA may need to moderate inflationary pressures.
The Reserve Bank governor has not ruled out an interest rate rise before 2024, So a 2023 rate hike, ahead of the RBA’s own expectations could be quite possible.
Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing reports. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.