>
Reserve Bank admits making another big mistake – after falsely telling Australia interest rates unlikely to rise until 2024
- The Reserve Bank of Australia has admitted its inflation forecasts were wrong
- It now predicts inflation will reach 8 percent in 2022 after a seventh rate hike
- A year ago, it saw headline inflation rise to 2.25 percent in December 2022
The Reserve Bank of Australia has admitted another mistake after falsely telling Australians last year that interest rates would be on hold until 2024.
Borrowers this week managed the seventh consecutive monthly mortgage increase since that forecast, as cash interest rates rose to a new nine-year high of 2.85 percent.
And the Reserve Bank admitted in a new monetary policy statement released Friday that it had misrepresented inflation forecasts.
“The bank’s inflation models (like most forecasting models) have underestimated inflation over the past year because it is difficult for forecasting frameworks to catch the signal of unprecedented events,” it said.
‘In order to meet this, more and more upward adjustments based on liaison, investigations and international experience are being incorporated into the forecasts.’
The Reserve Bank of Australia has admitted another mistake after falsely telling Australians last year that interest rates would stand until 2024 (pictured is Governor Philip Lowe)
Just a year ago, inflation in the Reserve Bank’s November 2021 monetary policy statement would stand at 2.25 percent in December 2022, and rise to 2.5 percent in December 2023.
But this week, the RBA revised its forecast to see inflation reach a new 32-year high of 8 percent by the end of 2022, up from a previous forecast of 7.75 percent.
Inflation rose 7.3 percent in the year to September, the fastest pace since 1990, after Russia’s invasion of Ukraine earlier this year led to sanctions that pushed the price of crude oil up.
The Reserve Bank now expects headline inflation, also known as the consumer price index, to remain above the target of two to three percent by 2024.
“Higher electricity and gas prices are likely to delay the return of inflation to the target range,” it said.
Westpac chief economist Bill Evans said the latest projections from the RBA show that the central bank now expects inflation to remain above target through 2025.
“It clearly completes the statement that it expects inflation to remain outside the two to three percent target for three years,” he said.
“It’s rare for the RBA’s year-end inflation forecast to be above its target range — the only other instances being when major tax changes were planned to raise the CPI — the carbon tax in 2011 and the GST in 2000.”
Just a year ago, in the Reserve Bank’s November 2021 monetary policy statement, inflation would be 2.25 percent by December 2022. This week, the RBA revised its forecast to see inflation reach a new 32-year high of 8 percent by the end of 2022 (pictured is a shopper at Woolworths in Mosman on Sydney’s lower north coast)
Governor Philip Lowe repeatedly told last year that interest rates would remain at a record low of 0.1 percent until 2024 “at the earliest.”
The central bank boss described inflation this week as a “scourge,” with ANZ and Westpac now both expecting RBA interest rates to hit an 11-year high of 3.85 percent in May 2023.
The Commonwealth Bank forecasts a cash interest rate of 3.1 percent by December 2022, while NAB forecasts a cash interest rate of 3.6 percent by March 2023.
The Reserve Bank’s latest rate hike of 0.25 percentage point was small compared to the United States and the UK.
The U.S. Federal Reserve raised the Federal Funds interest rate by 0.75 percentage point on Wednesday evening to a 14-year high of 3.75 percent to 4 percent, with U.S. inflation of 8.2 percent on nearly four decades.
The Bank of England raised its spot interest rate by 75 basis points to 3 percent on Thursday evening, warning of a “deeper and longer recession” in an economy where inflation hit a 40-year high of 10.1 percent in September.