News | 03 May 2022

Anchors away – RBA change course and raise rates

Sean Langcake

Sean Langcake

Head of Macroeconomic Forecasting

women working in martin place

In concert with raising rates, the RBA has announced it will shrink its balance sheet, effectively tightening monetary conditions over the next few years. The RBA’s balance sheet expanded considerably through the pandemic due to the Term Funding Facility, QE and yield curve control programs. Although new asset purchases ceased some time ago, there was still a choice to either maintain the size of the balance sheet or allow it to shrink as assets mature; by choosing the latter, the RBA has opted for tighter policy.

Moving the cash rate target to 0.35% is a slightly curious move that defies the RBA’s conventional target structure and previous guidance. The rate paid on bank balances has been lifted from 0% to 0.25%; the cash rate has traded closer to this floor rate than its target through the pandemic due to excess liquidity in the financial system. We expect the cash rate will trade at a slight premium to the floor rate for now, but it will converge back toward target over time alongside the attenuation of the RBA’s balance sheet.

Meet the team

You may be interested in

Jacaranda tree in bloom and sandstone church

Service

Australia Macro Service

In-depth insights and analysis of key domestic and global trends, enabling clients to make better strategic decisions, manage risks and take advantage of newly-developing opportunities in a fast-changing economic environment.

Find Out More
Melbourne CBD Looking Up

Post

Australian revenue upside allows purse strings and a smaller deficit

The strong performance of the Australian economy over the past six months has led to a sizeable revision of Treasury's projections for the budget deficit. Stronger-than-expected revenue growth means a deficit of 3.5% of GDP is now expected in FY22, down from 4.5% of GDP in the last MYEFO from October 2021. The ongoing strength in the labour market and higher commodity prices are the main sources of the revision to revenue projections.

Find Out More
bondi beach pool

Post

Australia’s cooling property market no immediate threat to new housing

Residential real estate markets globally performed strongly over 2020 and 2021 and Australia was no exception. Low borrowing costs, grant incentives, pandemic driven housing preference shifts, elevated savings and amassed household wealth underpinned the strong property price growth recorded over the last two years

Find Out More