Shadow Board flags interest rate rise
The official cash rate target has been at the historic level of 0.1 per cent for 17 months
For the first time since November 2020, the RBA Shadow Board at The Australian National University (ANU) has voted in favour of a rise in interest rates.
The Shadow Board's conviction to keep the official cash rate at a historic level of 0.1 per cent has weakened considerably.
The Shadow Board is only 47 per cent confident that keeping the cash rate steady is the appropriate policy setting. This is down from 86 per cent in April.
The Shadow Board attaches a 53 per cent probability that an interest rate increase to 0.25 per cent, or higher, is appropriate.
Chair of the ANU RBA Shadow Board Dr Timo Henckel said pressure on the RBA to follow suit with other major central banks, coupled with fiscal pressures such as inflation, wages and employment, are driving the need to increase interest rates.
"The official cash rate target has been at the historic level of 0.1 per cent for 17 months," Dr Henckel said.
"Numerous central banks have raised their cash rate recently, including the Federal Reserve, the Bank of Canada, the Bank of England, and the Reserve Bank of New Zealand. All central banks have flagged further rate rises in the coming months, adding pressure on the RBA to follow suit.
"The Ukraine war and rising geopolitical tensions elsewhere add to the tail risks, raising the possibility - according to some financial market analysts - of the world economy slipping into recession in 2023, or earlier. The US economy contracted by an annualised 1.4 per cent in the first quarter of this year."
The Shadow Board's six-month outlook has also weakened further. Confidence that the cash rate should remain at 0.1 per cent has fallen from 33 per cent in April to 21 per cent in the current round.
Read the full commentary online:
https://cama.crawford.anu.edu.au/rba-shadow-board/outcome/2022-05.
