RBA governor pours cold water on 2022 interest rate hike


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The Reserve Bank of Australia The governor poured cold water on market forecasts that Australia’s interest rate could rise next year, saying it is “still plausible” that rates will rise as expected in 2024.
In a speech to the Australian Business Economists (ABE), RBA Governor Philip Lowe said that while inflation is improving better than expected, Australia economy still has “a long way to go”.

“I would like to repeat a point I raised a few weeks ago, which is that the latest data and forecasts do not justify an increase in the cash rate in 2022,” Dr Lowe said.

RBA Governor Philip Lowe said current forecasts “do not justify” an interest rate hike next year. (Sydney Morning Herald)

“The economy and inflation are expected to develop very differently from our central scenario for the board to consider an interest rate hike next year.”

Dr Lowe said the RBA forecasts that core inflation – one of the named triggers of an interest rate hike – will reach a midpoint by the end of 2023.

But just hitting inflation targets may not be enough to push rates up, which currently stand at an all-time high of 0.1%.

“If that happened, it would be the first time in nearly seven years that we will be halfway through. That, in itself, does not justify an increase in the cash rate,” said Dr Lowe.

“As I said, a lot will depend on the path of the economy and inflation at the time.

“It is still plausible that the first increase in the cash rate will not come before 2024.”

The RBA board said it would be patient while waiting to increase the cash rate. (LOUIE DOUVIS)

The scrutiny of Australian interest rates comes as many experts attribute record rates to the country’s currently booming real estate market.

Dr Lowe said it might be justified to raise interest rates before 2024 if the opening of Australia’s borders results in an influx of migrant workers far beyond expectations.

“There is also the question of the effect on labor supply of the reopening of the international border. It is therefore possible that faster than expected progress will continue to be made towards achieving the ‘inflation target,’ said Dr Lowe.

“If this is the case, the cash rate should be increased before 2024. It is also possible that progress will be slower than expected, which would cause the cash rate to be maintained at current levels for longer. “

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