RBA Turn Hawkish. It was one of the last doves left in the developed world when Australia’s central bank raised interest rates more than expected in the middle of a campaign. This is giving more support for our previous prediction ->Why Aussie Dollar will Continue Rising. As we remain bullish on the AUD seems still undervalues across the board with the inflation booming, successive hikes for rest of 2022 from RBA, iron ore above pre-pandemic highs.
Philip Lowe, the governor of the Reserve Bank, broke a promise he made two months ago to be patient. Instead, he raised the cash rate by 25 basis points to 0.35 percent. For the first time in eight years, benchmark three-year bond yields rose above 3% for the first time.
This shows that other countries are taking more aggressive steps just before the Federal Reserve is set to raise interest rates for the first time in more than 20 years. Lowe’s change is bad news for the country’s center-right government, which is losing in polls as campaigning heats up for a May 21 vote.
Australian three-year yields jumped 19 basis points and the currency rose as much as 1.4%, before giving up part of the gain to trade at 71.09 U.S. cents. The benchmark stock index fell.
This comes after data last week showed that headline inflation rose to its highest level in more than two decades, while underlying prices rose above the RBA’s 2% to 3% target range.
Lowe said it was embarrassing that his predictions that rates would stay low until 2024 turned out to be wrong, but he didn’t say why. They’ve been predicting this since last year, and some economists think it will happen.
Rate futures show that the RBA will raise its cash rate to 2.75 percent at the end of this year, which would be a 25 basis point rise. That’s again well ahead of a central bank’s economic forecasts, which say that the cash rate should be between 1.5% and 1.75 % for a long time to come.
A problem for Prime Minister Scott Morrison’s government is the fact that the Australian public is already heavily in debt and is having a hard time keeping up with rising prices for goods and services.
The Commonwealth Bank of Australia, the country’s biggest lender, said it will raise variable home-loan rates by 25 basis points, which means that more people will have to pay for their homes.
The RBA’s statement also provided key figures from its quarterly update of economic forecasts that will be released in full on Friday.
- The central forecast for 2022 is headline inflation will accelerate to around 6% and core inflation to around 4.75%.
- By mid-2024, headline and underlying inflation are forecast to have moderated to around 3%
- Australian GDP is seen to grow by 4.25% over 2022 and 2% over 2023
- Unemployment is predicted to decline to around 3.5% by early 2023, the lowest level in half a century
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