Business

While global central banks made spikes, Australia took a smaller step


Australia’s central bank surprises the market in early October with a smaller-than-expected rate hike, a move the Reserve Bank of Australia acknowledged was a “well-balanced” debate even as it vowed to keep inflation under control. .

Based on RBA minutes From the October 4 meeting announced on Tuesday, two options were considered before the bank increase cash rate by 25 basis points to 2.6%the highest level in nine years.

It marked the bank’s sixth straight increase in a tightening cycle to curb global inflation.

The prospect of continuing to raise interest rates is “terrible” as central banks around the world work to tackle global inflation. The United States of America is reserved increase interest rates by 75 basis points in the September meeting, after same move by the European Central Bank same month.

The RBA considered two options: Continue with a 50 basis point increase in the cash rate or announce a smaller 25 basis point increase, the minutes said.

“The arguments for a continuation of the 50 basis point increase stem from the inflationary environment and risks to inflation expectations,” according to the minutes.

Finally, the central bank’s board members said they “recognize the benefit of a smaller increase.”

The introduction of policy adjustments will also help draw public attention for a longer time to the determination of the Board of Directors to bring inflation back to target.

Reserve Bank of Australia

Notes from its board members said the case to decelerate its rise was to “assess the impact of a substantial increase in interest rates to date and the evolving economic outlook. “

“A smaller increase than agreed at previous meetings has ensured that the cash rate has been substantially increased in a short time and the full impact of that increase,” the minutes said. still ahead,” the minutes said.

Deputy Governor Michele Bullock said many factors were considered for its recent smaller move, including a dire outlook for global markets.

She said at Australian Financial Industry Association.

“For these reasons, the Board feels that the lesser increase in October is warranted while it captures developments in consumption, wages and the international economy,” she added. economic.

She said the central bank has more flexibility over “the size and timing of rate hikes” because its board holds more meetings than other central banks in the region. RBA can achieve similar effects with smaller individual proportional gains, she said.

Select stocks and investment trends from CNBC Pro:

“It also means that if we raise rates at every meeting, we are likely to move much faster than central banks abroad. Or alternatively, we could hit the level. similar rate hikes with smaller increases,” she said.

The Australian dollar up nearly 0.2% against the US dollar shortly after the rally and last traded at $0.6284

Fear of inflation

The central bank also noted that the public’s broad focus on the fight against inflation is a key concern.

“The introduction of policy adjustments will also help draw public attention over a longer period of time to the Board’s determination to bring inflation back to target,” the minutes said. added that the Board remains determined to “do what is necessary” to bring inflation back to Target.

The Reserve Bank of Australia has inflation target from 2% to 3%. Annual Inflation in August increased to 6.8% from just under 2% before the pandemic.

The RBA minutes also noted that the central bank could lose more if it fails to keep inflation levels under control.

“If the Governing Council reduces the size of the rate hike, it will be the first to do so among advanced economies,” it said. “Ultimately, if increased risks to inflation materialize, or the reliability of a path to de-inflation is established, then re-establishing low inflation will be costly.”

The RBA said future rate hikes will be determined by other data and the outlook for inflation and the labor market.

The RBA Deputy Governor said: “Inflation is too high in Australia and is expected to rise further. Gaur. “However, you should not doubt that the Board is determined to do what is necessary to bring inflation back on target.”

news7g

News7g: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button