19 Dec 2021
Will the RBA raise rates in 2022 and what are the implications?
There’s been a fairly sizable about turn in terms of market expectations regarding the timing of the first RBA rate rise and the trajectory of rises thereafter. The RBA was until a few months ago steadfast in its rhetoric that they didn’t think they needed to raise rates before 2024 given still fairly weak inflation data and slack in the labour market (ie. absence of wages growth). It’s worth noting that the RBA has a dual mandate to target consistent and sustainable inflation of 2-3% and full employment (ie. widespread and sustained wages growth). What threw the RBA a curve ball a few months ago was a higher-than-expected quarterly inflation print of 2.1% (our first within target). That together with rampant inflation the USA has seen rate rise expectations brought forward by the market.
As it currently stands, we think the a rate rise is likely in the latter half of 2022 (if current inflation trends persist) or early 2023 (if current trends were to soften). Investment markets can and will be able to handle a slow, measured, and well telegraphed rate rising cycle from here, but rate rises aren’t without risk given the significant amount of additional debt taken on in the last 2 years and how supportive low rates have been for asset prices.
If you’d like to discuss any of the points raised, please do not hesitate to contact us on 9324 8888.
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