The GBP AUD exchange rate was flat ahead of the latest Reserve Bank of Australia interest rate decision. Traders shrugged off stronger UK construction figures as the market awaits the latest thoughts on stimulus and inflation from Governor Philip Lowe and his colleagues. There were also new fears for the Chinese Evergrande Group with the company losing 20% on new debt woes.
The GBP AUD exchange rate was trading at 1.8870 ahead of the release.
Reserve bank expected to hike in 2023 say analysts
The Reserve Bank of Australia is expected to raise interest rates in early 2023, according to a Reuters poll of economists. The analysts brought forward their rate hike date for the second straight month.
Inflation has been on the rise in Australia and around the world, with the RBA now predicted to increase its cash rate from a record low 0.10% in the first quarter of 2023. That’s slightly earlier than the second quarter of 2023 predicted a month ago, while a survey taken only two months ago said there was no consensus for an increase in 2023.
A small majority of economists expected at least one hike by the end of Q1 2023. All of the economists expect the cash rate to stay at 0.10% at the latest meeting.
“We forecast a first RBA rate hike in Q4 of 2022 and think the risk around that is for an even-sooner move. I think the RBA’s inflation forecasts are too low and Governor Lowe will be forced to take a hawkish pivot over coming months,” said Andrew Ticehurst, economist at Nomura.
Treasurer Josh Frydenberg has said he will upgrade his growth forecast for the Australian economy next year when he delivers a mid-year budget review on December 16th.
London fund manager Ninety One summed up the central bank transition globally, saying:
The “return to conventional monetary policy after years of abnormally accommodative stances”, presents a “difficult transition, potentially exposing markets to significant stresses in the year ahead.”
Pandemic stimulus covers up the cracks in Australia
The Reserve Bank of Australia will also face the difficult decision of when to wind down stimulus measures.
Recent GDP figures in Australia showed that the country had some resilience but there was some imbalance. Trade was again a key driver of growth, while public sector spending also propped up the economy.
A $507 billion in stimulus the pandemic also saved the economy from a year of lower growth and likely a recession. Data from ABS and ANZ banks also showed that since 2018, the public sector has been the key driver of new jobs created.
In the UK, construction was seen growing at it fastest pace in four years on Monday with a drop in delivery times for materials. A new study also showed that HGV driver shortages could also be easing as less drivers left the industry and new test applications were 25% higher.
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