Opinion: Despite almost no chance of a decision to increase the official cash rate, Tuesday’s meeting of the Reserve Bank board is set to be truly historic. Why?
Despite a near zero per cent chance of any decision to increase the official cash rate, Tuesday’s meeting of the Reserve Bank board is set to be truly historic.Well, for one, we know the bank is sure to announce the end of its extraordinary program of buying government bonds. It’s not clear if the bank will simply cease buying bonds altogether in February, or begin a slower “tapering” of the current pace of purchases of $4 billion a week.
Since that original decision, made during some of the darkest days of COVID, Reserve Bank governor Philip Lowe has remained adamant he does not see the pre-conditions for a rate hike forming until 2024.market economists have come to expect increases to the official cash rate at some point in 2022 Over summer, however, the labour market has shown surprising strength and measures of underlying inflation in consumer prices have also surprised, surging right into the middle of the Reserve Bank’s target band of 2 to 3 per cent.Lowe has consistently said he wants to be sure inflation is “sustainably” within the band before he will lift rates.
During that time, however, Lowe has been able to express a very clear vision of what it will take for Australian inflation to return sustainably to his target band. Why are wage rises necessary to fuel inflation? Well, only permanent pay rises reliably put the money in the pockets of workers they need to sustainably bid up prices for goods and services.
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