RBA outlook could line up with Treasury

by | August 5, 2022 03:30 | News

As Australia looks down the barrel of an inflation rate close to eight per cent this year, borrowers and investors are wondering how much further official interest rates will rise.

Some insights into the central bank’s rate thinking will be revealed in a quarterly Statement on Monetary Policy due on Friday. 

The RBA document will lay out its key economic forecasts for inflation, gross domestic product or growth, the labour market and wages.

The statement comes after the RBA lifted its key cash interest rate by 50 basis points to 1.85 per cent on Tuesday, for the fourth time in as many months.

The monetary policy action was a continuance of its ongoing battle to push inflation back down to its preferred target band of two-three per cent.

Still, the majority of the RBA’s forecasts are expected to align with those released last week by the federal Treasury.

So far, the RBA expects annual headline inflation to be around 7.75 per cent this year, above four per cent in 2023 and around three per cent in 2024.

“Inflation is expected to peak later this year and then decline back towards the two-three per cent range,” it said on Tuesday.

“The expected moderation in inflation reflects the ongoing resolution of global supply-side problems, the stabilisation of commodity prices and the impact of rising interest rates.”

The RBA currently projects the economy to continue to grow “strongly” this year, on the back of a tight labour market and resilient consumer spending.

Financial market economists don’t expect the RBA will downgrade many of its forecasts, although it could prove to be more bullish about employment.

“The RBA will have to lift its inflation profile and lower its near-term unemployment projection with the focus on whether the forecasts show a credible path back to target inflation,” NAB economists said earlier this week.

The unemployment rate to fell to 3.5 per cent in June – the lowest rate in almost 50 years.

All eyes will be on its outlook for wage growth as well, given the tough competition in the labour market for workers and an ongoing push by unions for pay rises.

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