RBA makes cash rate call for June
The Reserve Bank of Australia has handed down its interest rate decision for June, with inflation continuing to rise.
As widely anticipated, the RBA has decided to raise the interest rate again this month, increasing the cash rate target by 50 basis points to 85 basis points.
The increase was correctly predicted by 24 of the total 28 experts and economists on comparison website Finder.
AMP Capital chief economist Shane Oliver said that inflation is running well above target and is likely to get worse.
“Unemployment at 3.9 per cent is effectively at full employment. Wages growth is picking up. There is a danger that the longer inflation stays high and demand strong, inflation expectations will rise making it even harder to get inflation back down,” Mr Oliver explained.
“The RBA need[s] to continue the process of normalising interest rates.”
While My Housing Market chief economist Andrew Wilson also predicted that rates would rise again for June, he noted that data released in recent weeks had likely challenged the RBA’s previous assumptions.
“Predictably disappointing wages data, low jobs growth, another fall in the participation rate, another sharp decline in the savings rate, falling disposable income levels and a moderate GDP performance will be food for thought for the RBA [which is] hoping to avoid a hard landing in its attempt to curb inflation,” said Mr Wilson.
“Recessionary clouds are already gathering in other advanced economies that increased rates higher and earlier than Australia.”
Prior to the RBA announcement, Moody’s Analytics economist Harry Murphy Cruise predicted the RBA would increase rates by 40 basis points.
“Short-term inflation expectations are rising and the RBA needs to tame those gains. The May rate hike confirms that the RBA is acting on rising inflationary pressures even if much of the price rises are outside the RBA’s sphere [of] influence (notably food and energy),” said Mr Cruise.
“The speed of further interest rate normalisation will rely on how well businesses and families react to these higher borrowing costs, as well as the pace of real wage gains.”
BIS Oxford Economics former chief economist and KPMG senior economist and partner Sarah Hunter said that with continued uncertainty and rising pressure from inflation, it’s likely there will be continual changes to the cash rate throughout the year.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.