2 Aug 2022
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RBA lifts interest rates 0.5% to 1.85% in fourth consecutive month of increases
August 2022 - Article provided by PSK's Chief Investment Officer Chris Lioutas.
The Reserve Bank of Australia (RBA) Board increased the cash rate by 0.50% to 1.85% at its August meeting.
The move was expected given higher inflation and lower unemployment figures of late, with the RBA expecting inflation to peak in around 7% by the end of the year.
The August statement had more balanced undertones, with some already suggesting a dovish stance creeping in. We don’t see any reason for the RBA to turn dovish just yet, but they definitely needed to bring down market expectations for their rate hike path down from previous levels, with this statement doing just that.
They maintained they remain committed to their 2-3% inflation target over time, with credibility being key here. They expect medium term inflation to remain elevated - 4% over 2023 and 3% over 2024 - but they expect economic growth to drop fairly sharply from current levels (3.25%) to 1.75% over 2023 and 2024.
They are paying close attention to households given the stark contrast in data, with higher costs of living putting pressure on budgets - causing household confidence to fall sharply, while the labour market remains strong and the household balance sheet looks in good shape (for now).
Interestingly, the Board felt it necessary to clarify that they were not on a pre-set path with regard to policy normalisation.
Given current and forecast data, we expect the RBA to raise rates by another 0.50% at their next meeting in September, with a slowdown in rate rises expected thereafter. But again, that path will be dictated by prevailing inflation and employment data, particularly at the household level.
As always, if you have any questions or your personal circumstances have changed please do not hesitate to contact your financial adviser
PSK Financial Services Group Pty Ltd ABN 24 134 987 205 trading as PSK Private Wealth; is a Corporate Authorised Representative & Credit Representative of Charter Financial Planning Limited, ABN 35 002 976 294. This document contains information that is general in nature. It does not take into account theobjectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based onthis information.
