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Reserve Bank of Australia (RBA) Resumes Rate Hikes, Raises Bar for Further Tightening

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RBA Resumes Rate Hikes, Sets Higher Bar for Further Tightening

Australia's central bank, the Reserve Bank of Australia (RBA), has resumed raising interest rates, signaling a more cautious approach to future policy tightening. The RBA increased its cash rate to a 12-year high of 4.35% and revised its inflation forecast slightly upward to 3.5% by the end of 2024. Despite the rate hike, the RBA emphasized the need for further data and assessment of risks before considering additional tightening measures. The central bank's decision had an immediate impact, with the Australian dollar falling and government bond yields declining. Economists at Goldman Sachs believe that rates will now remain on hold, but future decisions will depend on data and economic conditions. The RBA's move contrasts with other central banks, such as the Federal Reserve, the European Central Bank, and the Bank of England, which have chosen to hold rates. While the RBA's central forecast suggests inflation will continue to ease, recent data indicates a higher risk of inflation remaining elevated for a longer period. The central bank will release its full suite of forecasts in its quarterly Statement on Monetary Policy. While most economists believe the RBA has reached its peak rate, some, including National Australia Bank and Royal Bank of Canada, predict at least one more rate hike. The RBA's cautious approach reflects its aim to achieve a soft landing for the economy and consider the impact of tightening on highly leveraged borrowers. The future of Australia's rates cycle remains uncertain, with upcoming economic data likely to shape discussions around policy and potential reversals.

Implications of RBA's Rate Hikes for New Businesses

The Reserve Bank of Australia's (RBA) decision to resume raising interest rates, setting a higher bar for further tightening, could have significant implications for new businesses. While the RBA's cautious approach aims to achieve a soft landing for the economy, the immediate impact of the decision, including a fall in the Australian dollar and a decline in government bond yields, could create a challenging environment for startups and small businesses. New businesses often rely on loans for initial capital and operational expenses. With the RBA's rate hike, borrowing costs could increase, making it more expensive for these businesses to secure the funding they need. Additionally, the uncertainty surrounding Australia's rates cycle could make financial planning more complex for new businesses. On the other hand, the RBA's decision could also create opportunities for businesses in certain sectors. For instance, businesses in the financial sector could benefit from higher interest rates. Moreover, the RBA's emphasis on data and economic conditions for future decisions highlights the importance of data analytics, potentially benefiting businesses in this field. Overall, while the RBA's rate hikes present challenges, they also offer opportunities. The key for new businesses is to understand these implications and adapt their strategies accordingly.
Story First Published at: https://financialpost.com/pmn/business-pmn/rba-resumes-rate-hikes-lifts-hurdle-to-further-tightening
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