RBA stays firm on rate freeze in 2022

Mortgage Business reports that the RBA has stayed firm on a rate freeze for 2022.

In an address to the Australian Business Economists, Reserve Bank of Australia (RBA) Governor Philip Lowe reflected on the recent movements in inflation and the consequences of the monetary policy. 

The RBA has forecast annual underlying inflation will reach the middle of its 2-3% target band by the end of 2023 - which would be the first time in close to seven years. As of September, the trimmed mean (which excludes extreme price rises and falls) for annual underlying inflation just stepped inside the range, increasing to 2.1%. RBA had previously set the target range as a prerequisite for raising the cash rate from its current historic low of 0.1%.

Despite recent market speculations that the cash rate could rise as soon as next year after the inflation developments, Dr Lowe reaffirmed the central bank’s recent denial of a 2022 move. 

“I can’t rule that out because it doesn’t have zero probability, but it has a very low probability because it would require wages growth to pick up very substantially and probably above 3%,” he told attendants at the Sydney event. 

For RBA to be satisfied that inflation is sustainably within its target, wages will need to be growing at around 3% or over, in contrast to the expected moderate inclines. The RBA’s central forecast for the Wages Price Index is that it will increase by 2.5% over 2022 and 3% over 2023. 

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