RBA Governor Phil Lowe has just delivered a speech entitled “Recent Economic Developments”, where he pushed back against predictions of imminent rate rises, but noted that “it is plausible the cash rate will be increased later this year”
RBA Lowe said “I recognise that there is a risk to waiting too long, especially in a world with overlapping supply shocks and a high headline inflation rate. But there is also a risk of moving too early.” Inflation – which has climbed to 3.5 per cent in Australia could climb towards 5 per cent by the middle of the year.
The take out is that RBA won’t lift the cash rate until it sees evidence that wage growth has risen above 3%, which is unlikely to be achieved until late this year. The bank will take a ‘wait-and-see’ approach, which is at odds with market expectations.
Financial markets and many economists expect the RBA to start lifting interest rates, currently at 0.1 per cent, as early as June because of the building inflation pressures across the economy.
Economists at the NAB on Tuesday became the latest to pull forward their interest rate expectations, tipping three rate rises through the second half of the year.
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