Hike rates

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BENGALURU (Reuters) – Australia’s central bank will take another half-percentage-point interest rate hike on Tuesday as it struggles to bring soaring inflation under control, marking the first time it has risen the cash rate of this magnitude in back-to-back meetings, according to a Reuters poll. .

After raising its benchmark rate by 50 basis points in a hawkish surprise last month, Reserve Bank of Australia Governor Philip Lowe played down the possibility of rates being raised by 75 basis points, mitigating weeks of speculation that it would match the U.S. Federal Reserve’s latest decision.

But with inflation already at a 20-year high of 5.1% in the first quarter and expected to approach 7% by the end of 2022, markets are betting that the RBA will have to raise rates faster, to nearly 3 % by the end of the year.

All but one of the 33 economists in the June 27-30 Reuters poll predicted the RBA would raise the key rate another 50 basis points at its July 5 meeting, taking rates to 1.35%. An economist expected a 25 basis point hike.

Since the introduction of the cash rate in 1990, the RBA has never raised it by half a percentage point in two consecutive meetings.

“The Reserve Bank appears to be catching up with accelerating inflation. The challenge for the RBA is to minimize the fallout on broader inflationary pressures. It appears aware of this challenge,” noted Felicity Emmett, senior economist at ANZ.

The big four local banks – ANZ, Westpac, CBA and NAB – were expecting a 50 basis point hike on July 5.

Economists have also significantly advanced rate hike expectations from the last survey in June. Nearly 60%, or 18 of 31, now expect the cash rate to hit 2.00% or more by the end of September, 75 basis points higher than previously expected.

Rates were then expected to reach 2.35% by the end of 2022, compared to 1.75% forecast in the June survey. Most respondents who had forecasts through the end of next year, 21 out of 26, saw rates hit 2.60% or higher, where economists said the neutral rate is.

“The RBA has increased the bet on inflation and is working overtime to make up for lost ground. But it’s not just the actual price increases that are of concern. Philip Lowe knows he has only a small window to tame expectations,” said Harry Murphy Cruise. , macroeconomist at Moody’s Analytics.

“Lowe said the RBA would do ‘what is necessary to bring inflation down to 2-3%’. But for that to be believed, the board needs to put its money where it belongs.”

A handful of economists doubted the neutral rate would be reached or exceeded given Australians are sitting on A$2 trillion in mortgage debt, making them highly sensitive to borrowing costs amid the crisis. rising cost of living.

The poll showed inflation to remain well above the RBA’s 2% to 3% target range until mid-2023. It was expected to average 6.1% this year and slip to 4.0% in 2023, a substantial improvement from the 4.2% and 2.8% forecast in April.

Australia’s economy is expected to grow 4.0% this year and 2.4% in 2023.

Andrew Ticehurst, an economist at Nomura, predicts a recession next year, the only survey respondent with three consecutive quarters of contraction. He said the RBA’s rate hikes “would eventually bite, exposing Australia’s Achilles heel, excessive consumption and high property prices.”

(Reporting by Devayani Sathyan; Polling and analysis by Arsh Mogre; Editing by Ross Finley and Hugh Lawson)

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