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Markets Expect RBA to Lift Cash Rate to 4.85% on Tuesday Amid Recession Fears
RBA is expected to lift its cash rate to 4.85% on Tuesday, with economists warning the move raises recession risk.
Key points
- Tuesday's expected increase would be the fifth rate rise this year, taking the cash rate to an 18-year high.
- Unemployment is 4.7 per cent, already above what the Reserve had been predicting, and growth is forecast to slow to 1.4 per cent by year's
- Shane Oliver expects the RBA to downgrade its growth outlook to as low as 1 per cent by mid-2027, with unemployment likely forecast to hit
Why it matters. On a 30-year $600,000 mortgage, monthly repayments would rise by a cumulative $500 if the Reserve moves on the cash rate, as economists warn of a higher recession risk.
The Reserve Bank of Australia is widely expected to raise official interest rates to an 18-year high of 4.85% when it decides on Tuesday afternoon, which is Melbourne Cup Day. Inflation has sat above the bank's 2-3 per cent target band for most of the past four years, and Tuesday would be the fifth rate increase this year. AMP chief economist Shane Oliver puts the chance of recession at between 30 and 40 per cent, while HSBC Australia's Paul Bloxham warns the risks are rising of a harder landing or recession.
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Markets Expect RBA to Lift Cash Rate to 4.85% on Tuesday Amid Recession Fears
Markets and most economists expect the Reserve Bank of Australia to lift the official interest rate to 4.85 per cent on Tuesday afternoon. Some commentators have warned the increase could drive Australia into recession. They argue it could leave tens of thousands of people out of work. The warnings add pressure on Treasurer Jim Chalmers to cut deeper into government spending. The RBA's decision will be closely watched for its effect on household budgets and the broader economy.
Markets Expect RBA Rate Rise on Tuesday as Underlying Inflation Stays High
Bond markets and most economists have swung behind a Reserve Bank of Australia rate hike on Tuesday. The decision follows hot inflation figures and hawkish commentary from governor Michele Bullock the previous week. In annualised terms, the trimmed mean measure of underlying inflation was 3.7 per cent. That is the 20th consecutive quarter that underlying inflation has sat above the midpoint of the Reserve Bank's two to three per cent target band. A Middle East oil shock and rising prices have added to the pressure.