The Reserve Bank of Australia on Tuesday is expected to signal plans for multiple interest rate rises over the next few months, regardless of whether it decides to increase the cash rate at May’s meeting, or waits until after the federal election.
The Australian government 10-year bond yield touched 3.17 per cent on Friday, its highest level since November 2014. The cash rate is a record low 0.1 per cent.Although the election campaign hangs over the RBA board meeting, Dr Lowe also faces a monetary conundrum separate from politics. History shows that when the RBA begins a rate rising cycle to tame inflation, it imposes multiple interest rates increases over the span of a few months.ANZ economist Felicity Emmett said she expected the RBA to signal that “a series of consecutive rate hikes is likely”.
“The breadth and momentum in the [inflation] report strongly suggests that it would be imprudent for the RBA to wait for more data on wages, especially given that its own liaison program indicates that ‘wages growth had continued to pick up in the March quarter’.Angus Coote, co-founder of bond fund manager Jamieson Coote Bonds, said the RBA had already lost credibility with the market after guiding that interest rates would stay at 0.
“Australians couldn’t give a stuff what inflation is in the United States. Australians know that what really matters here is that it’s harder and harder for them to keep up,” he said.
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