The Reserve Bank faces a delicate task of raising its key interest rate fast enough to quell inflation, but without causing so much “climb shock” to household budgets that the economy stalls, economists say.
The central bank board meets on Tuesday with economists almost evenly split between tipping the cash rate will be lifted either by 25 basis points to 0.6%, or 40 basis to 0.75%, according to Bloomberg. Any rate rise would be the RBA’s first back-to-back monthly increase in 12 years and possibly the biggest jump since a 50 basis point hike in February 2000.
“They should put rates up to 0.75% at least, just because inflation is as high as it is and employment [is] as strong as it is, so real interest rates are substantially negative,” said Warwick McKibbin, an Australian National University monetary policy professor and a former RBA board member during the bank’s last flurry of rate rises.
“That’s very, very stimulative to the economy,” he said. “The question is, do we need that much monetary stimulus where we still have what looks like fairly substantial spending by the federal government?”
The RBA’s first interest rate rise in more than 11 years landed smack in the middle of the federal election campaign last month, arguably denting the Morrison government’s claims to be good stewards of the economy. The new treasurer, Jim Chalmers, however, now faces the prospect of regularly having to explain why rates are rising, with investors betting on a steady and steep increase for months to come.
<p lang=«en» dir=«ltr» xml:lang=«en»>Ahead of tomorrow's anticipated interest rate rise by the RBA, here's what investors are expecting. About a 70% chance of a 40 basis point rise to 0.75%. #auspol pic.twitter.com/UrMc8qpOHRThe RBA last
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