The Reserve Bank of Australia is pondering the surge in inflation and the increase in the rate of unemployment to readjust its position on the interest rate outlook at its forthcoming meeting for this year, which is to be held tomorrow.
There is apprehension in the financial markets about a cash rate increase from a historical low of 0.1% in June to July in 2021. Economists, though, appear to lean towards another meeting coming up in August.
Reports released two weeks ago revealed a 4.2% drop in the unemployment rate in December. This comes a year earlier than forecast by the RBA. The inflation rate is also rising faster than forecast.
This has been seen in the lack of precision of the RBA towards the end of last year when they shifted their prediction on the rising cash rate from 2024 to 2023. But Philip Lowe, the RBA governor, totally excluded the rise coming in 2022.
The forthcoming meeting allows the board to set out the direction of the interest rate for the year. There is an expectation from economists that a decision to halt the buying of bonds will also be made at the meeting.
Unemployment Forecast Is Set to Be Scaled Down
The outcome of the meeting will be made known in Governor Lowe’s statement after the meeting as well as on Wednesday when he addresses the Sydney National Press Club. The Monetary policy quarterly statement and the latest forecasts by the RBA are due on Friday. The anticipated outcome of the reports is the same cash rate, a scaled-down unemployment prediction, and a scaled-up inflation forecast, leading to a total increase over the previous 2024 predictions.
Other reports of happenings in the Australian economy are the expectation of a dip in the growth of housing costs, reduced demand for home loans, and a decline in general retail expenditure due to the effect of COVID-19.
This news has brought about a strong reaction in the Australian dollar market. The current news triggered bullishness in the market as prices bounced up 1.20% from 0.69960, with a further increase in the market expected.
Note: Forexschoolonline.com is not a financial advisor. Do your research before investing your funds in any financial asset or presented product or event. We are not responsible for your investing results.
Leave a Reply