RBA hands over long-awaited May cash rate

At its monthly board meeting on Tuesday, May 3, the bank decided to raise the cash rate by 25 basis points, from 0.1 to 0.35 percentage points.

This decision confirms what three of Australia’s four major banks predicted last week, when economists from Westpac, NAB and ANZ all revised their forecasts to predict that the central bank would change the cash rate after official inflation figures hit 5.1%.

Only the Commonwealth Bank refrained from predicting a hike in May, predicting that the RBA would wait for further evidence on labor costs before launching the tightening cycle in June.

The ABC economists had, however, acknowledged that it was possible that the bank could intervene sooner.

Ahead of today’s call, Westpac, NAB and ANZ all predicted a 0.15 percentage point rise in May.

PropTrack economist Paul Ryan said that by moving today, rather than waiting for new data in June, “the RBA is signaling that it will step in to rein in stronger-than-expected inflationary pressures, despite the federal election campaign underway”.

He noted that failure to adjust the policy may have been seen as a larger policy intervention.

Anneke Thompson, chief economist at CreditorWatch, said that even if the bank had decided to move ahead of the release of wage growth figures, it would still play an important role in determining how the board proceeds in June.

“Even if the upcoming wage data shows an increase from the current growth rate of 2.3%, it is almost impossible for it to come close to the latest inflation figure of 5.1%. This means that it is almost sure the data shows that real incomes are falling,” Ms. Thompson noted.

“Nevertheless, the RBA will take solace if it sees at least some momentum gaining in wage growth. If we see growth in wage prices with a 3 ahead, that could push the RBA to move the cash rate more aggressively , to try to get the inflation spiral under control faster,” she said.

Regarding the reaction of house prices with rising mortgage rates, PRD Chief Economist Dr Diaswati Mardiasmo recently weighed in with historical data indicating that it will likely take several rounds of tightening. rates before house prices reflect the change.

In response to rising inflation from the fallout from the global financial crisis, the RBA initiated a number of cash rate hikes from October 2009.

“The cash rate rose from 3.25% to 4.75% in the space of 12 months, an increase of 175 basis points in the space of just over 12 months,” noted the Dr Mardiasmo.

But the first cut in spot rates in October 2009 did not immediately lead to lower prices.

“In fact, real estate prices have risen due to the possibility of another rise in spot rates in the following months. Buyers wanted to be able to buy their property at the new October 2009 exchange rate before it ran out,” Dr Mardiasmo explained.

“It took several successive cash rate hikes over a period of approximately 12 months before we saw a cooling in prices. This suggests that there is a time lag between a cash rate hike event and the translation into the real estate prices.

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Juliet Helmke

Based in Sydney, Juliet Helmke has extensive reporting and writing experience in business, technology, entertainment and the arts. She was previously an editor at the New York… Read More

RBA hands over long-awaited May cash rate

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Last update: May 03, 2022

Posted: May 03, 2022