Reserve Bank of Australia expects to raise interest rates in federal elections

Economists and financial markets are now expecting the Reserve Bank of Australia (RBA) to raise its cash rate at the next board meeting on May 3 instead of June, as previously predicted.

Immediately after the Australian Bureau of Statistics announced a new inflation rate on April 27, the mindset changed rapidly. This is the fastest growth in more than 20 years, with the annual consumer price index jumping from 3.5% to 5.1%.

In addition, the annual base inflation rate, which is more important for the interest rate outlook, has soared to 3.7%, the highest level since 2009.

This number is well above RBA’s inflation targeting band of 2-3 percent.

“Australia’s inflation dynamics have changed,” said Phil O’Donna Hugh, Chief Economist at Deutsche Bank Research.

He said the RBA did not have much opportunity to prevent inflation from going out of control as it did in the United States.

“We should act now, whether in federal elections or not,” he said.

Financial markets are priced at the risk of cash rates rising from the current 0.1% at the next RBA board meeting to 0.25%.

Su-Lin Ong, Chief Economist at RBC Capital Markets, also updated her forecasts that cash rates will rise 0.15% in May and another 0.25% in June, a month ahead of previously estimated timing.

“Moving both during the campaign and shortly after the federal elections … may remove some politics from this imminent tightening cycle,” Ong said.

Epoch Times Photo
People pass by a retail store in Sydney, Australia on March 19, 2020. (Saed Khan / AFP via Getty Images)

If the RBA goes live on May 3, it is the first time the central bank has acted without political involvement since the cash rate hike during the November 2007 election campaign.

Prime Minister Scott Morrison said the decision to raise interest rates was left to the independent RBA, and the current situation is quite different from 2007, when the cash rate was around 6.5%.

He also emphasized that inflationary pressures in the Australian economy are due to external factors.

“What we are experiencing now is a pandemic, what Australians are experiencing because of what happened in the war in Europe, putting great pressure on prices around the world.” Morrison told Sky News.. “It really affects people’s households, and we understand it.”

But shadow finance officer Jim Chalmers said the prime minister’s allegations about effective economic management were “totally torpedoed” by the latest inflation data.

“If Australian working families can’t move forward and can’t move forward under this government, it’s not good economic management,” he said, and it’s now more expensive for people to pay mortgages. I added that it would be.

“It wasn’t long ago that Scott Morrison lied to the Australians and ran around saying,’If you choose the Labor government, interest rates will go up,’ and it was blown to his face. “

Alfred buoy


Alfred Bui is a Melbourne-based Australian reporter with a focus on local and business news. He is a former small business owner and holds two master’s degrees in business and business law. Contact him at [email protected]