The Reserve Bank of Australia is closely monitoring the situation. On Tuesday, the country’s top central banker said there would be more policy tightening as rates were low, and that public expectations and wage demands shouldn’t be affected by higher inflation.
However, RBA Governor Philip Lowe discounted the chances of an even bigger interest rate increase of 75 basis points, while disagreeing with the view that interest rates might reach 4% by the end of the year.
The top Australian central banker warned that price pressures are continuing to grow both globally and domestically, and that inflation is now expected to reach 7% by the end of 2022.
It would be the fastest pace in a very long time and well above the central bank’s long-term target range of 2%-3%.
The central bank raised the official cash rate to 0.85%.
There were also two minutes recorded in which the members of the board discussed whether the cash rate should be raised by 25 basis points or 50 basis points. Australia’s central bank chose the second option because policy needed to be “normalized” to curb inflation.
Since then, the US Federal Reserve has hiked by 75 basis points, fueling speculation the Reserve Bank of Australia will follow suit.
“At the moment, we’re looking at either 25 or 50 at the next meeting,” the central bank chief said when questioned about it.
A tightening cycle of the sharpest magnitude in modern RBA history is necessary to match market wagers of 4% by year-end, according to Lowe.
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Reserve Bank of Australia and Federal Reserve
We discussed Philip Lowe’s comments. However, let’s not forget about the Federal Reserve and its boss.
In a speech to congressional lawmakers on Wednesday, Federal Reserve Chairman Jerome Powell said the Fed has the ability to reduce inflation.
The US Fed Chairman stated that We at the Fed understand the plight of those struggling to pay higher prices. He also commented that We’re doing all we can to take action to reverse this and return inflation to more normal levels.
While expressing resolve on inflation, Powell said the economy is generally healthy. However, he acknowledged that inflation is too high.
Powell stated that Ukraine’s war, as well as China’s Covid-related shutdowns, are increasing inflation and that crisis isn’t exclusive to the U.S. but affects different economies of the world.
Congress mandates that the Governor publish a report of monetary policy every two years.
In these very important weeks for the Federal Reserve, the institution has risen rates an accumulated 150 basis points – 1.5 percent – at its past three meetings.
Despite economic troubles, Powell and his colleagues have announced the hikes will continue.