Today, the Reserve Bank of Australia released its quarterly economic outlook, which warned of more interest rate hikes due to inflation, currently at 5.4%. The bank expects this figure to drop to 4.5% by the end of the year and further decrease to 3.5% by the end of 2024. This inflation surge is influenced by various factors including population growth, the Hamas-Israel conflict, pressure on the rental market, and an El Nino event. These factors will maintain inflation above the bank's target range of 2-3% until late 2025.
Australians' take-home pay is under pressure due to slow wage growth, high prices, and increasing taxes. The interest rate has already reached a 12-year peak of 4.35%. Further monetary tightening in February could add an extra $100 monthly to repayments on a standard $600,000 mortgage.
On Thursday, the Reserve Bank hinted at holding rates as inflation expectations align with their target, indicating an inflation risk. The economic projection anticipates increased inflation due to necessary monetary policy tightening and a potential cash rate peak, as noted by Jerome Powell's comments. The bank is prepared for a gradual increase in inflation.
The minor increase in ASX signifies a stagnant market awaiting incoming data, consistent with forecasts for a cash rate peak close to the Reserve Bank's predictions. Powell's focus on upcoming rate hikes has slightly pushed up market expectations for an additional 25 basis point hike.
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