Don’t be surprised when the RBA raises interest rates by 0.25% at its next meeting 7 March 2023. This will take the official cash rate to 3.60%.
The RBA would be silly to do anything less as last month it signalled it was considering raising rates by 0.25% or 0.50%.
So how high will interest rates go?
Clearly, in Australia, we are approaching the top of the economic, interest rate and inflation rollercoaster. Here’s why—
- While still at an elevated level of 7.4%, annual inflation for January showed a decline by -0.4% presenting us with the first concrete-sign that inflation may have turned the corner.
- One of the RBA’s key, forward-looking concerns when considering inflation and interest rates is wages growth and they surprisingly undershot expectations last week.
- Wednesday’s Q4 December GDP came in lower than expected at 0.5% or 2.7% annually.
- Consumer confidence is at record lows.
A pause is on the cards
If the softer pattern of numbers continues, a pause will be on the cards soon but it may take a few more interest rate hikes first. The range of views on where official interest rates will top out is anywhere between 3.85% and 4.35%.
Once the RBA pauses, I don’t think they will be cutting from there anytime soon. The journey for the RBA in getting on top of inflation has been too painful and they won’t risk cutting until they are absolutely certain they are back in control. The last thing they want to do is to cut and then have to raise again. The only other reason for them to cut is if the economy is fully tanking.
Internationally the interest-rate story is similar to ours but to varying degrees. In the USA inflation appears more persistent. Consequently its central bank is ‘talking tough’ on further interest rate hikes with the possibility of a 5.25% terminal rate. Canada raised interest rates for the 8th consecutive time recently to 4.5% and NZ last week raised by 0.50% to 4.75%.
AUD/USD taking a hit
As a side issue, the seeming divergence of Australia’s inflation and interest rates, and that of the USA, is putting downward pressure on the AUD/USD exchange rate.
While the consumer seems to finally be responding to the message on spending, bringing inflation back inside the RBA’s 2-3% range is likely to be a long and difficult challenge.
Let’s see!
Regards Boris
0413 844 991
Impact to borrowing capacity due to the rise in interest rates
The steep and dramatic rise in interest rates is having a major impact on borrowing capacity both in the residential and commercial spaces. Commercially ICR (interest cover ratio) and DSCR (debt service cover ratio) are the key ratios that are causing difficult conversations between banks and customers.
Let me know if I can help.
Will RBA pause?
Don’t be surprised when the RBA raises interest rates by 0.25% at its next meeting 7 March 2023. This will take the official cash rate to 3.60%.
The RBA would be silly to do anything less as last month it signalled it was considering raising rates by 0.25% or 0.50%.
So how high will interest rates go?
Clearly, in Australia, we are approaching the top of the economic, interest rate and inflation rollercoaster. Here’s why—
A pause is on the cards
If the softer pattern of numbers continues, a pause will be on the cards soon but it may take a few more interest rate hikes first. The range of views on where official interest rates will top out is anywhere between 3.85% and 4.35%.
Once the RBA pauses, I don’t think they will be cutting from there anytime soon. The journey for the RBA in getting on top of inflation has been too painful and they won’t risk cutting until they are absolutely certain they are back in control. The last thing they want to do is to cut and then have to raise again. The only other reason for them to cut is if the economy is fully tanking.
Internationally the interest-rate story is similar to ours but to varying degrees. In the USA inflation appears more persistent. Consequently its central bank is ‘talking tough’ on further interest rate hikes with the possibility of a 5.25% terminal rate. Canada raised interest rates for the 8th consecutive time recently to 4.5% and NZ last week raised by 0.50% to 4.75%.
AUD/USD taking a hit
As a side issue, the seeming divergence of Australia’s inflation and interest rates, and that of the USA, is putting downward pressure on the AUD/USD exchange rate.
While the consumer seems to finally be responding to the message on spending, bringing inflation back inside the RBA’s 2-3% range is likely to be a long and difficult challenge.
Let’s see!
Regards Boris
0413 844 991
Impact to borrowing capacity due to the rise in interest rates
The steep and dramatic rise in interest rates is having a major impact on borrowing capacity both in the residential and commercial spaces. Commercially ICR (interest cover ratio) and DSCR (debt service cover ratio) are the key ratios that are causing difficult conversations between banks and customers.
Let me know if I can help.
by Boris Sfiligoi
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