RBA election surprise on the cards with oversized rate hike

The bank last raised official interest rates in November 2010. Since then, more than 1.1 million people have taken out their first mortgage, never having seen an increase in interest rates.

AMP Capital’s chief economist, Shane Oliver, said there were good reasons for the RBA to raise rates at its May meeting and hike it by 0.4 percentage points. He said there was a real risk that next week’s inflation report would show price pressures taking hold in the economy.

“The new explosion in Australia means that Australia is now starting to face the same risk as in various other countries that inflation expectations will spin out of control, locking in above-target inflation, making it even more difficult to lower inflation,” he said. mentioned.

Both sides of politics have taken aim at cost of living issues throughout the election campaign. The Coalition announced measures in the budget worth $9 billion, including a reduction of 22.1 cents per liter over 6 months in fuel excise duty.

Prime Minister Scott Morrison said on Friday that the coalition’s economic plan would put downward pressure on interest rates.

“How do we make sure we have the maximum downward pressure on rising interest rates, the maximum downward pressure on rising cost of living? You do it by having a solid economic plan,” he said.

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Shadow Treasurer Jim Chalmers said while the economy is improving, the Coalition is failing to help people cope with real cost pressures.

“If you walk the main streets of this country, as we have been, then we understand that people are falling further and further behind due to the skyrocketing cost of living and falling wages. in the government’s budget,” he said.

Much hinges on Wednesday’s March quarter inflation report. Capital Economics economist Ben Udy expects core inflation to hit 3.6% for the March quarter. Westpac and ANZ are forecasting a rise to 3.4% – a 0.8 percentage point increase, which would be the largest in more than a decade.

“The Reserve Bank is increasingly convinced that rate hikes will be needed before long,” Udy said.

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