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RBA makes March rate call amid Ukraine ‘uncertainty’

RBA governor Philip Lowe and Australian currency.
The RBA has left the cash rate on hold at a record low 0.1 per cent. (Source: Getty)

The Reserve Bank of Australia (RBA) has left the cash rate at a record low of 0.1 per cent in March.

RBA governor Philip Lowe said the global economy is continuing to recover from the pandemic but the war in Ukraine is a new source of uncertainty.

“Inflation in parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of strong demand,” he said.

“The prices of many commodities have increased further due to the war in Ukraine.”

Lowe said the Australian economy has been “resilient” with lower unemployment and higher wages but has remained adamant that inflation pressures are not the same in Australia as they are around the world.

“Inflation has picked up more quickly than the RBA had expected, but remains lower than in many other countries,” he said.

Lowe said the RBA expects underlying inflation to continue to increase over the course of 2022 to 3.25 per cent, before dropping to 2.75 per cent over 2023.

Lowe also warned that inflation is expected to jump in the short term due to the crisis in Ukraine.

“The CPI inflation rate will spike higher than this due to the higher petrol prices resulting from global developments,” Lowe said.

“How long it takes to resolve the disruptions to supply chains is an important source of uncertainty regarding the inflation outlook, as are developments in global energy markets.”

Pressure to hike

Many other nations have started hiking rates, or at least indicated rate rises will be coming soon as inflation pressures pick up around the world.

The RBA has previously indicated it feels the Australian economy is different to others around the world and while inflation may be increasing, rushing to lift the cash rate is not the appropriate response.

However, Lowe has warned Aussie homeowners that while the RBA’s stance is to remain patient, a rate rise will happen and households need to be prepared.

“One of the things that I think will happen is that interest rates will go up. I can't tell you when, but they will go up,” Lowe previously said at a National Press Club address in February.

There are more than 1.1 million mortgage holders in Australia that have never experienced a rate rise.

Lowe said it was important for those people to be prepared for the inevitable change to come.

“The advice that I would give to people is, make sure that you have buffers. Interest rates will go up,” he said.

“And the stronger the economy, the better progress on unemployment, the faster and the sooner the increase in interest rates will be.

“So interest rates will go up. We need to be prepared for that. And people need to have buffers.”

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