While inflation remains high, the odds of a rate rise next Tuesday are probably a 50-50 coin toss for the central bank’s nine-member board, writes John Kehoe.
reported on Wednesday was a bit below market expectations and confirms that inflation has fallen from its peak of 8.4 per cent in the December quarter. interest rate, remains deeply negative.The new variable since Lowe outlined the four key pieces of data is the global banking ructions in the United States and Europe.As a result, financial markets are betting the global monetary policy tightening cycle is over.
But the market pricing could change very quickly if there is another upside inflation surprise in the US. Money markets are pricing a 39 per cent chance the US Federal Reserve raises interest rates on May 3, compared to about 11 per cent for the RBA next week.Central banks in the US and Europe at the epicentre of the banking runs on Silicon Valley Bank and Switzerland’s Credit Suisse still managed to raise interest rates this month.If the RBA pauses the cash rate, the official interest rate will be well below comparable cental banks in the US , New Zealand , Canada and England .
Westpac chief economist Bill Evans is tipping an April pause before a final rate increase in May to take the peak rate to 3.85 per cent.The monthly inflation indicator captures only about two-thirds of goods and services measured in the more comprehensive quarterly consumer price index. The RBA will be conscious that the October and November monthly inflation figures were softer, before the full December quarter number was much stronger than expected and forced it to turn hawkish.is Economics editor at Parliament House, Canberra. He writes on economics, politics and business. John was Washington correspondent covering Donald Trump’s election. He joined the Financial Review in 2008 from Treasury.
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