The Reserve Bank’s big interest rate juggle has reached a critical moment, writes Michael Read.
If you believe Westpac chief economist Bill Evans, the RBA’s next move is more likely to be aThe veteran economist thinks the RBA has probably done enough, having lifted the cash rate by a massive 4 percentage points since May 2022 as it battles the most acute inflation outbreak in decades.Getty
The central bank does not expect inflation, currently 6 per cent, to fall beneath 3 per cent until December 2025. A quicker return to target would come at the cost of higher unemployment, which runs counter to Lowe’s desire to preserve as much of the pandemic-era labour market gains as possible.Although inflation remains high, Lowe is conscious the 12 interest rises he has already delivered are yet to have their full effect on the economy.
Headline inflation fell to 6 per cent in June from 7 per cent in March, driven by an easing in price pressures across discretionary consumer goods like clothes and appliances as consumers cut back on spending. The RBA forecasts GDP growth, currently 2.3 per cent, to slow to 0.9 per cent by the end of the year, which would be theBut predictions of an end to rate rises do not have universal support.
Meanwhile, inflation in the labour-intensive services sector remains at a two-decade high, fuelled by strong wage gains and a jobs market that appears largely immune to the most rapid interest rate tightening cycle in a generation. Murphy thinks it is possible employers are hoarding more workers than they need until clear evidence emerges the economy has slowed.
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