There’s no doubt that the Reserve Bank of Australia will raise its cash rate again at Tuesday’s monthly board meeting as it battles mounting inflation – it’s just a matter of how much.
Last month, the RBA raised the spot interest rate from a record low of 0.1 percent to 0.35 percent — the first increase since November 2010.
tThe RBA minutes, released two weeks after the May 3 rate hike, suggested more pain would come to rein in strong consumer spending.
“Members noted that it would be more difficult to bring inflation back to target if the inflation psychology in Australia changed in a sustainable way,” it said.
Auctioneer Karen Harvey counts down a bid during an auction for a home in Sydney’s Hurlstone Park.
Economists expect an increase of at least another 25 basis points this month, or maybe even 40 or 50 basis points this time.
AMP chief economist Shane Oliver believes a bigger increase cannot be ruled out after the central bank said at its latest board meeting it was considering a 40 basis point hike.
Instead, it opted for a “business as usual” increase of 25 basis points.
But dr. Oliver argues that inflationary pressures have increased since the May meeting, with gasoline, electricity and rent prices rising.
“The RBA’s concerns about the rising psychology of inflation are likely to have increased, suggesting an increase in the pace of tightening in June to overcome inflation,” he said.
Potentially rising wage growth as the unemployment rate dips to its lowest level in nearly 50 years has been a key focus of the RBA for some time.
However, David Bassanese, chief economist at BetaShares, says that while the RBA has long talked about anecdotes of stronger wage growth, the evidence in a range of available official data remains patchy.
“In my opinion, the wage data to date does not provide the RBA with the ‘smoking gun’ it needs to justify a 40 basis point rate hike,” he said.
“The RBA should and probably will only raise interest rates by 25 basis points…to avoid the risk of needlessly hurting business and consumer confidence.”
The photo shows a woman who is disappointed with the contents of her wallet. Homeowners with mortgages will have less money if interest rates rise again as expected on Tuesday
In the minutes of its May meeting, the RBA noted that financial markets expected at least a 0.25 percentage point increase in June, with more increases that would push the spot rate to 2.5 percent by 2023.
The RBA surprised financial markets this month by raising spot interest rates by 0.25 percentage points — to 0.35 percent — instead of 0.15 percentage points as expected.
“Most market analysts also expected an increase in the target for the spot rate at current and next meetings,” the minutes said.
After a tirade of key official data in recent weeks, the pace slows over the next week with a series of second-rate reports.
The week kicks off with ANZ on Monday releasing its job ad series – a guide to job demand – for May, while the Australian Bureau of Statistics will release its payroll report for the two weeks ending May 14 on Thursday.
The full labor report for May will be released next week.
Australian home borrowers are expected to be hit by another rate hike in June as inflation rises at an even faster pace than expected (Pictured is an auction in Melbourne)
Meanwhile, Australian stocks look set to start the week weak after Wall Street shares were hit by another selloff after the monthly US jobs report came in stronger than expected.
U.S. employers added 390,000 jobs in May, surpassing expectations of an increase of 322,500.
While this is good news for a country concerned about a recession, many investors saw that it kept the US Federal Reserve on the path of aggressive rate hikes.
The S&P 500 index fell 68.28 points, or 1.6 percent, to 4108.54. The Dow Jones Industrial Average fell 348.58 points, or one percent, to 32,899.70, while the Nasdaq index fell 304.16 points, or 2.5 percent, to 12,012.73.
Australian stock futures fell 32 points, or 0.4 percent, to 7,210.
The Australian benchmark S&P/ASX200 index was up 62.9 points on Friday to 7238.8, a gain of 0.88 percent.