RBA will increase rates by 50 basis points in July to make up for lost time, according to a Reuters poll

As it works to contain soaring inflation, Australia's central bank will increase the cash rate by another half percentage point on Tuesday, according to a Reuters poll. This will be the first time it has ever done so at two consecutive meetings.

July 01, 2022 - 01:09 PM 237 views

RBA will increase rates by 50 basis points in July to make up for lost time, according to a Reuters poll

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© RBA will increase rates by 50 basis points in July to make up for lost time, according to a Reuters poll

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As it works to contain soaring inflation, Australia's central bank will increase the cash rate by another half percentage point on Tuesday, according to a Reuters poll. This will be the first time it has ever done so at two consecutive meetings.

Key Findings

The Reserve Bank of Australia (RBA) Governor Philip Lowe has downplayed the possibility of rates being raised by a super-sized 75 basis points, quelling weeks of speculation that it would follow the U.S. Federal Reserve's most recent move. The RBA raised its benchmark rate by 50 basis points in a hawkish surprise last month.

However, markets are betting that the RBA will have to hike rates faster, to near 3 percent by the end of the year, as inflation has already reached a 20-year high of 5.1 percent in the first quarter and is predicted to touch 7 percent by the end of 2022.

In the June 27–30 Reuters survey of 33 economists, all but one predicted that the RBA will increase the cash rate by another 50 basis points at its July 5 meeting, bringing rates to 1.35 percent. One analyst predicted a rise of 25 basis points.

In addition, economists now predict rate increases far sooner than they did in the previous survey in June. 18 out of 31 people, or close to 60%, anticipate the cash rate will be at least 2.00 percent by the end of September, an increase of 75 basis points.

A few experts questioned if the neutral rate would be reached or exceeded considering that Australians are heavily reliant on borrowing costs due to their A$2 trillion home debt and the country's escalating cost of living crisis.

The survey indicated that through mid-2023, inflation would continue to run considerably above the RBA's target range of 2 percent to 3 percent. In comparison to the April predictions of 4.2 percent and 2.8 percent, it was anticipated to average 6.1 percent this year and decline to 4.0 percent in 2023.

According to predictions, Australia's economy would expand by 4.0 percent this year and 2.4 percent in 2023.

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