Is RBA more relaxed when it comes to interest rate hikes in Australia?


The Reserve Bank of Australia has recently dismissed a chance of rate hike any time soon after a period of financial turmoil. This has found relation to emerging fears of inflation and the mountain of household debt. The recent market volatility is not expected to have any significant impact on the growth outlook for Australia and the rates in Australia do not need to “move in lock-step” while the United States might have a different stance on interest rate hikes.

RBA has highlighted in the past that there is a need to return to a federal surplus to build a buffer to deal with a future economic shock. It is expected that a lift in wage growth is likely to be necessary for inflation to average around the midpoint of the 2-3 per cent medium-term inflation target, in order to have a stronger sense of shared prosperity. Many investors had been working under the false assumption that unusually low inflation and unusually low volatility in asset prices would persist even with above-trend growth at a time of low unemployment. Further, annual wage growth needs to be accelerating to around 3.5 per cent from the current 2 per cent in order to improve the scenario. Meanwhile, the recent upturn in the economy has boosted the domestic outlook with better employment gains and retail sales.

In view of the interplay among the above factors, RBA has left the cash rate on hold at 1.5 per cent during its recent meeting. As the jobless rate was at 5.4 per cent which is around 0.5 percentage that is a point above the RBA full employment rate, so most economists and financial markets don’t expect a rate hike before the middle of the year. According to the financial market pricing, there is a chance that the rates might hike in May by about 4 per cent. However, this can only find support from improving employment rates, wages growth and inflation scenario. On the other hand, some believe that the interest rates may only pick up next year.

While GDP growth is forecasted to average a bit above 3 percent over the next couple of years, the central bank would need to be cautious in terms of interest rate hiking given the above backdrop while threat from rising Australian dollar also infuses weakness in economic outlook.


The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Leave a Reply