RBA could lift rates higher, earlier as global forces threaten ‘small target’ Albo

The Albanese Government may face earlier and more aggressive interest rate hikes as global problems could also bring about unpopular decisions, according to market analysts.


May 24, 2022, updated May 24, 2022
Prime Minister Anthony Albanese. (AAP Image/Darren England)

Prime Minister Anthony Albanese. (AAP Image/Darren England)

ANZ chief economist Richard Yetsenga said Labor’s small target strategy could also lead to the Government becoming a “policy pinata’’ in which it would take a barrage of hits and be forced to respond to issues “rather than setting a strong policy agenda’’.

Yetsenga believes the Reserve Bank will stick to its business as usual approach at its next meeting in June and hike the cash rate by 25 basis points, rather than the 40 points some are expecting.

But Morgan’s analyst Tom Sartor isn’t convinced.

“Depending on global forces (China, Ukraine, supply chains) some potentially unpopular decisions may quickly arise,” Sartor said.

“While the RBA is independent, with the election now behind us, earlier and more aggressive rate hikes are plausible to dampen inflation more quickly.’’

Sartor also believes Parliament’s shift to the left could also drive a more aggressive environmental debate.

“Pressure on Labor to go beyond its current environmental policies (including its 43 per cent emission reduction target by 2030) could build,’’ Sartor said.

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“Power generation, mining, oil and gas and farming sectors are all plausible targets for tighter environmental scrutiny and/or higher barriers to development.’’

Sartor said the Albanese Government was facing structural issues around inflation and interest rates, Budget deficits and debt, sluggish wages and productivity reforms including the transition to renewables.

Yetsenga said the nature of the electorate had shifted. 

“This has tended to narrow the stated differences between the two major parties, rather than widen them as has sometimes occurred elsewhere. That was going to leave whichever party was elected at risk of a bit of policy piñata; being forced to respond to issues as they arise, rather than necessarily setting a strong policy agenda,’’ he said.

He expects the RBA will added another 125 basis points (1.25 per cent) to the cash rate this year.

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