As in most of the world, Australia has seen rising interest rates and ongoing inflation. This situation is still a reflection of the Covid-19 pandemic, which shook the economies of countries in a localized and globalized way.
The general context is also not very encouraging. The world is currently going through financial, energy and social crises, resulting from the still unfinished Coronavirus pandemic, the war between Russia and Ukraine and many natural instabilities that affect the population in general.
In this context, Australia struggles to keep its economy safe, even after the frustrations of emergency policies adopted in the pandemic. Even so, amid increases in the main indexes and decline in growth, the Central Bank of Australia (RBA) will undergo a structural review for policy adjustment.
Firstly, inflation in Australia is now at 5.1%, the highest in the last 20 years. The rise in the index got out of the RBA’s control, and this year alone forced the bank to raise interest rates three times. That makes this the biggest increase in decades.
The consumer price index (CPI) currently stands at 1.9%, and the annual rate is 6.1%. The latter is also the biggest since 2001, and compared to wages, it has more than doubled.
Finally, in terms of markets, the move is against the RBA averaging 75 basis points, which aligns with the US Federal Reserve’s value.
Australia revealed a very peculiar policy in the pandemic, both in relation to the containment of the virus, as with economic postures.
The rise in price indices and rates is nothing new in today’s world. However, the situation in Australia reveals that even in those countries where there was an active stance from the beginning, there is currently a rebound effect of an uncontrolled economy.
For now, experts avoid talking about an economic recession. The strategy for the coming periods is to keep increasing interest rates and regulating the market until normality.
Faced with the rise in inflation, the Central Bank sees the regulation of the ratio between supply and demand in the country as the first and main measure to be adopted. To this end, it advocates raising interest rates.
This is a classic measure adopted to regulate production. Thus, the production process becomes more expensive, as well as the final product. This reduces supply in order to balance it with demand, which is now lower due to the economic situation.
The goal is to keep inflation at 2 to 3%, which is currently at 5.1%. Thus, the RBA has been raising interest rates for three consecutive months, which could reach up to 3.5% by the end of the year.
This active positioning of the Central Bank of Australia is part of a planned revision desired by the new Labor government. This is because in addition to not meeting the goal of maintaining inflation at up to 3%, the RBA was heavily criticized regarding its positioning to contain the effects of the pandemic.
At first, the plan was that rates should remain at an emergency low of 0.1% until 2024, when the market would already be supposedly stabilized. However, the measure proved to be too rigid, and the indices revealed a certain lack of control on the part of the leaders.
Thus, the RBA is now undergoing a scrutiny phase and the information is that a first-rate team has been selected to review the policies adopted by the institution. The goal is for there to be a reanalysis of its operations, communication with the public and structure as a whole.