The Reserve Bank of Australia (RBA) is under increased scrutiny following disappointing December inflation figures, leading to speculation that it may reverse course on its previously anticipated easing cycle. Some analysts suggest that past rate cuts may have been premature, raising questions about the RBA’s forecasting abilities and potential political influence. The central bank has materially underestimated the strength of the jobs market and broader economy, which has led to some massive misses on its inflation projections.
Amidst this backdrop, financial markets are pricing in a significant probability of a rate hike in February, with expectations of further increases to follow. Barrenjoey’s rates strategist Andrew Lilley comments, “February plus May go away, 50 and done.” This suggests a potential ‘double tap’ approach, involving two 25-basis-point hikes, which would bring the cash rate to 4.1 per cent. Such a move aims to curb inflationary pressures and cool down the housing market, particularly in booming cities like Brisbane and Perth.
The RBA’s actions are also seen as a message to politicians, highlighting the impact of government spending on interest rates. Concerns have been raised about waste, inefficiency, and corruption within government sectors. Some observers believe the RBA has been hesitant to directly address these issues, contrasting with its more assertive stance in previous economic cycles. The longer the RBA waits to snuff out the nascent crisis, the harsher the monetary medicine will likely have to be.
The RBA is the central bank of Australia. It conducts monetary policy and issues currency. Its goal is to maintain price stability and full employment.
