Insights

The market expects the RBA to take the cash rate to 3% by the end of 2022

Current cash rate futures are pointing to rates hitting 3% by the end of the year…
The post The market expects the RBA to take the cash rate to 3% by the end of 2022 appeared first on The Motley Fool Australia. –

Earlier this week, the Reserve Bank of Australia surprised the market with a greater than expected increase in the cash rate.

In response to rising inflation and low unemployment, the central bank took rates 50 basis points higher to 85 basis points.

Governor Philip Lowe explained why the Reserve Bank made the move. He said:

Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected. [..] Inflation is expected to increase further, but then decline back towards the 2–3 per cent range next year. Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago [..]. Today’s increase in interest rates will assist with the return of inflation to target over time.

Unfortunately for borrowers, the central bank acknowledges that this rate hike, as large as it was, won’t be enough to tame the inflation beast. Mr Lowe has warned that more hikes are coming and soon. He explained:

The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.

Where are rates going?

If you thought that 0.85% was a shock to the system then you might want to hold onto your hat.

The ASX 30 Day Interbank Cash Rate Futures provide investors with an idea of what the market is expecting from the Reserve Bank over the next 18 months. And it certainly isn’t pretty for borrowers.

Here’s what lies ahead for the cash rate between now and this time next year according to futures:

Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
1.55%
1.63%
1.96%
2.35%
2.8%
3.02%
3.09%
3.31%
3.46%
3.59%
3.68%
3.7%

This means that the market is now pricing in the cash rate reaching 3% by Christmas, after which it is expecting rates to continue to rise to 3.7% by this time next year.

Given this expected rapid rise and the impact it could have on borrowers and the economy, it’s no surprise to see Commonwealth Bank of Australia (ASX: CBA) shares, the rest of the big four, and the ASX 200 index behaving so volatile this week.

Time will tell how accurate the market is with its predictions.

The post The market expects the RBA to take the cash rate to 3% by the end of 2022 appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of January 12th 2022

setButtonColorDefaults(“#43B02A”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43B02A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

ASX 200 midday update: Big four banks rebound, Atlas Arteria’s takeover update
Why are ASX 200 bank shares rebounding on Friday?
5 things to watch on the ASX 200 on Friday
Here are the 3 most traded ASX 200 shares on Thursday
ASX 200 midday update: Magellan rebounds, Crown’s takeover boost

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Free Share Allocation Reward Levels

STARTER

Class
$ 2,500 Deposit & Trade
  • REWARD^
  • 1 x Marathon Oil Corporation (NYSE:MRO)

ECONOMY

Basic
$ 5,000 Deposit & Trade
  • REWARD^
  • 1 x Pfizer Inc (NASDAQ:PFE)

ECONOMY

Standard
$ 10,000 Deposit & Trade
  • REWARD^
  • 1 x Amazon.com Inc (NASDAQ:AMZN)

ECONOMY

Plus
$ 25,000 Deposit & Trade
  • REWARD^
  • 2 x Apple Inc (NASDAQ:AAPL)
POPULAR

BUSINESS

Class
$ 50,000 Deposit & Trade
  • REWARD^
  • 4 x Apple Inc (NASDAQ:AAPL)

FIRST

Class
$ 150,000 Deposit & Trade
  • REWARD CHOICES^
  • 12 x Apple Inc (NASDAQ:AAPL)
  • 2 x Tesla (NASDAQ:TSLA)
^Please refer to the Free Share Promotion Terms and Conditions for details.

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info