7 Feb 2023
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The Reserve Bank of Australia (RBA) Board increased the cash rate by 0.25% to 3.35% at its first meeting of the year.
February 2023 - Article provided by PSK's Chief Investment Officer Chris Lioutas.
The Reserve Bank of Australia (RBA) Board increased the cash rate by 0.25% to 3.35% at its first meeting of the year.
The move was expected by markets with many expecting two rate rises early in the year before a potential pause from the Bank.
Interestingly, there were quite a few differences between this statement and their December statement, which may have caught some by surprise.
Key points to note are as follows:
- Global inflation remains high, but is moderating, due to lower energy prices and resolution of supply-chain issues
- They look to have bought themselves a buffer of another year regarding their inflation forecasts – ie. falling to 4.75% this year and around 3% by “mid-2025”
- Economic growth forecasts of 1-1.5% for this year and next are unchanged
- Recovery in spending on services has “largely run its course” with tighter policy conditions to constrain spending further
- The labour market remains tight, they expect unemployment to rise but not materially so, and are closely watching wages growth
- Acknowledged that some households already feeling the squeeze in conditions given higher borrowing costs and house price falls
- Provided firmer rhetoric regarding the dangers of high inflation
- Interestingly, they adjusted their guidance to rate rises in the “period ahead” to rises in the “months ahead”
We still believe the RBA is near the end of this rate hiking cycle, given the lagged effects of last year’s hikes have yet to be felt by households and the broader economy, but soon will be.
Following their announcement, Australian equities are lower, the AUD/USD is slightly higher, and bond prices have fallen (ie. yields higher).
As always, if you have any questions or your personal circumstances have changed please do not hesitate to contact your financial adviser
General Advice Warning - Any advice included in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs.
