Economy
RBA grapples with interest rate decision amid inflation concerns
In a closely contested decision, the Reserve Bank Board recently chose to increase official interest rates due to concerns over potential long-term inflation. The board was cautious about the effect of higher interest rates on households and acknowledged the uneven distribution of these financial pressures.
During their June 6 meeting, where they ultimately raised the cash rate to 4.1%, members of the Reserve Bank assessed both sides of this delicate balance. They were concerned that persistent inflation could lead to even higher future interest rates and eventually cause unemployment numbers to spike.
The board emphasized that prolonged periods of above-target inflation would contribute to an “inflation psychology” in which businesses and households incorporate rising costs into their budgets. This could result in high inflation becoming entrenched, necessitating even longer periods of elevated interest rates and increasing the risk for significant unemployment growth.
Additionally, they noted that extended high-inflation periods would distort economic stability and exacerbate cost-of-living pressures, disproportionately affecting low-income individuals.
On one hand, some members argued for maintaining a cash rate at 3.85% based on signs pointing towards a rapidly slowing economy as well as concerns that further hikes might trigger sharper-than-anticipated declines in economic health.
However, despite acknowledging increased household burdens resulting from higher interest rates, members ultimately opted for raising them out of concern for combating sustained inflationary pressure.
The board also expressed its unease regarding recent property price increases but decided it should have less influence on consumer spending within the next year than initially believed.
Furthermore, during discussions around Fair Work Commission’s recent decision to raise award wages by 5.75%, while understanding compensation for lowest-paid workers amidst high inflation was fair; there were warnings against allowing widespread wage adjustments tied directly to ongoing inflated levels across various job sectors.
Since this meeting took place earlier this June, stronger-than-anticipated labor force data has prompted expectations of further rate hikes. The May unemployment rate dropped to 3.6%, with 75,900 new jobs created during the month; money markets now predict a 90% chance that another interest rate increase will occur at the Reserve Bank’s July 4th meeting, potentially raising the cash rate to 4.35%.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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