Week in review
- RBA raises rates by 25bps to 3.35%
- Australia trade balance falls to A$12.2bn
- China inflation rises to 2.1% in January
Week ahead
- Australia business and consumer confidence
- U.S. CPI inflation
- Australia labour market report
Thought of the week
It appears central bankers are trying to be both doves and hawks. However, trying to be both leads to being good at neither and raises the level of market uncertainty. The message from the recent central bank meetings was that policy rates are going higher, but they are not sure by just how much. Inflation and labour market reports in the coming months will determine the outcome. The risk of squeezing too hard when policy conditions have already tightened meaningfully in the past year raises the chance of a policy error that creates a more detrimental growth outcome. The important aspect for investors is that central banks are closing in on the peak in policy rates. Market expectation for the peak in policy rates was not greatly changed after the latest round of central bank meetings. While the uncertainty on whether the U.S. Fed pushes policy rates over 5% or the cash rate in Australia starts with a four may keep investors on edge. The that fact that central banks are very close to the end of the hiking cycle is more important. .
Market expectations for central bank policy rates
Expected rate by 30 June 2023