The Reserve Bank Of Australia has kept the official interest rate on hold at its first meeting of the year, despite inflation rising faster than its expectations.
At its monthly meeting the RBA board also agreed to end its quantitative easing program after its final bond purchases on February 10, but stated that this won’t necessarily translate to a near-term increase to interest rates.
The central bank’s quantitative easing program began in March 2020, with bond buying, record low interest rates and the term funding facility helping to stimulate the economy as the coronavirus pandemic hit.
The RBA has been buying bonds at a rate of $4 billion per week since September, with the total bonds purchased expected to reach $350 billion by the program’s end.
But experts believe mounting inflation pressures mean it’s only a matter of time before the central bank lifts the cash rate target, with many economists now predicting a rise before the end of the year.
“While we don’t know precisely when it will come, it’s definitely going up at some point, so households should start gearing up now for that likelihood,” said HSBC economist Paul Bloxham.
“While the Reserve Bank originally said it wouldn’t rise until 2024, it’s quite clear it will happen before that, and it could be as soon as this year, but more likely in early 2023. People now have to start factoring that into their decision-making.”
Inflation in the US has jumped to an annual rate of 7 per cent off the back of a domestic economy that has grown faster than expected – 5.7 per cent last year.
The latest Consumer Price Index (CPI) in Australia also rose more than forecast, by 1.3 per cent in the last quarter of 2021, bringing inflation to a total of 3.5 per cent over the year.
The biggest price rises were for new homes at 4.2 per cent, and petrol at more than 6.6 per cent.
Even when the annual inflation rate was trimmed, however, by taking out the biggest price rises and falls, it would still hit 2.6 per cent, the highest rate since 2014.
* This information is general in nature and not intended to be financial advice.
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