The Reserve Bank of Australia (RBA) will meet today to discuss monetary policy for the coming year. Discussions will center
The Reserve Bank of Australia (RBA) will meet today to discuss monetary policy for the coming year.
Discussions will center on whether to not to increase Australia’s “cash rate”, the country’s benchmark interest rate. A higher interest rate generally incentivizes having cash in hand, raising the value of the currency and devaluing non-cash assets like stocks and bonds. Changes in the interest rate cause short-term market volatility as the market adjusts.
Like many other countries during the pandemic, Australia kept its cash rate artificially low, at .1 percent, incentivizing public spending and stimulating its economy. Now, with rising inflation rates and a low unemployment rate, RBA may elect to raise the interest rates.
Countries around the world have been increasing rates, causing market volatility, especially in the high-tech sector. For Australia, increasing the rates today is unlikely but they will likely accelerate the timeline for returning to normal rates. Expect RBA to raise rates starting in April of 2023, ahead of its previous goal of 2024. As countries around the world continue to raise interest rates, expect additional volatility in the value of cash-rich sectors—like high-tech and cryptocurrency—as investors seek to liquidate their holdings.