Economic experts expect the Reserve Bank of Australia (RBA) to maintain its aggressive interest rate policy with another outsized rate hike in October as global economic conditions remain concerning.
The RBA said it would opt for a 0.25-0.5% hike at the next board meeting on October 5 and take into account the global economic outlook and consumer spending habits. when making the decision.
Royal Bank of Canada economist Su-Lin Ong predicted October’s rate hike would be a 0.5% increase, citing the hawkish stance of central banks around the world.
“With the Australian dollar falling as global rate expectations reset, adding to domestic inflationary pressures, the RBA remains under pressure to also deliver an outsized rate hike,” Ong said.
Nonetheless, she noted that the RBA would likely maintain a lower “neutral rate,” the interest rate that neither stimulates nor deflates economic activity, than its international counterparts due to high levels of household debt and mortgages. at variable rates contracted by the owners.
Meanwhile, ANZ economists predicted that the RBA would end its tightening cycle when the neutral rate hits 3.35%. However, they said there was a chance the rate could go up.
“The RBA appears poised to slow the pace of increases, but global experience suggests more work needs to be done,” ANZ economists said.
“We expect the cash rate to rise to 3.35% by the end of the year, but risks are growing that a higher cash rate will be needed to stifle inflation.”
OECD downgrades Australia’s economic outlook
Meanwhile, a report by the Organization for Economic Co-operation and Development (OECD) said that although Australia’s economy could perform better than those of Europe and the United States, the country was still affected by the bleak global outlook.
In its latest interim report, the OECD has downgraded Australia’s economic position and projects that the country’s real GDP will grow by 4.1% in 2022 and 2% in 2023. This represents a decline of 0 .1 and 0.5 percentage points, respectively, from the June forecast.
Meanwhile, the organization expected Australia’s core inflation to hit 5.4% in 2022 before dropping to 4.3% in 2023.
Treasurer Jim Chalmers agreed with the OECD’s view on the outlook for the Australian economy.
“The OECD report shows that the global economy is treading treacherous ground – with slowing global growth, runaway inflation, falling real wages and extreme uncertainty,” he said.
“These challenges are intensifying, not dissipating, and Australia is not immune to this darker and more dangerous global outlook.”
However, he said there was reason to be optimistic about the longer-term future of Australia’s economy and noted that his October budget would focus on providing “responsible” relief. “the cost of living.