Published June 8, 2022 1:00 pm est
by Richard F. Cason, 
Editor in Chief,
NewsMovesmarketsForex
Key Take away’s-
- Reserve Bank of Australia, (RBA), Raise Interest Rate by .50 basis points to .85 percent on June 7, 2022
- Australia Largest Trading Partner is China (2021 Two way Trading totaled 194 Billion dollars), China COVID-19 lock down continues to have an adverse effect on Trading Volumes thus far
- Global Inflation running rampid far exceeding RBA expectations which has influenced officials to be proactive for the 2nd consecutive month in a row to increase the cash rate target by .50 basis points in a attempt to cool down the Australian scorching red hot Economy
- RBA also increased the interest rate on Exchange Settlements balances by .50 basis points to .75 basis points
- The Key domestic and abroad Factors sustaining the inflationary dilemma are higher than expected prices in electricity, gas, as well as the disruption of global supply chains ie..China Covid-19 Lock down, Russian Ukraine war
- RBA repetitively Laments that Hiking the interest rates will assist with the return of inflation to target overtime
- On a more positive note: Governor Philip Lowe reports that: “the Australian Economy is resilient, growing by .8 percent in March quarter and 3.3 percent over the year, Household and business balance sheets are generally in good shape, and overall construction projects are bustling
- Labor markets are Strong, Employment is at a record 50 year low, Job vacancies and job ads are at high levels and further decline in unemployment and underemployment is expected”
- Russian Ukraine conflict has disrupted global supply chains, China’s COVID-lockdowns, continues to disrupt normal commerce activities
The Reserve Bank of Australia Increases the cash rate by .50 basis points to .85 percent on June 4, 2022. This is the second consecutive month of hikes and the highest interest rate increases by the Governing Council in over two decades.
The Central Bank also increased the interest rate on the exchange settlements balances by .50 basis point to .75 basis points.
According to the Financial Times Survey over 50 Global Central Bank Policy makers have used monetary policy moves to raise interest rates in their prospective native country this year alone. Hiking Interests seem to be the prevailing theme in the global fight against inflation. And the European Central Bank is expected to lift the interest rate past zero percent on tomorrow’s Monetary Policy meeting.
Central banks worldwide have had to be aggressive by using the monetary tool of rate hiking to keep up with the pace of geo political headwinds causing economic global supply chain disruptions and the ongoing Covid-19 China Lock downs restrictions. Suffocated trading Activities World wide. Not to mention the Russia Ukraine war which continues to elevate commodity and energy prices through the roof. 
I asked Marc Ostwald an expert Chief Economist & Global Strategist with ADM Investor Services International head quartered in London England, 
what was his take on the lasted Reserve Bank of Australia’s rate Hike as well as the consensus of the global central bank hiking rates to fight inflation, stated:
“The unexpectedly aggressive 50 bps RBA rate hike, with a clear signal of more to come serves as a reminder that the move to ‘neutral’ in many countries will be rapid, and while uncoordinated, the pace of monetary tightening may prove to be rather more unsettling for markets than the ‘relief’ rally in riskier assets after the April/May sell-off implies. Specifically in terms of the RBA, it does underline that the risks that rapid fire rate hikes post to the local housing market are not going to restrain the RBA from getting rates to neutral as quickly as possible”
Central banks are in a very difficult place, they underestimated the effects of supply chain shocks due to the pandemic, attributing far too much to temporary disruptions, and underestimating the long-term factors that were also in play, above all long-term upstream oil and gas underinvestment (.e.g. 2011-2016 saw an average $750 Bln p.a. invested in upstream, 2017-2021 the average fell to $400 Bln p.a.). It was always going to be difficult to establish how much productive capacity was permanently lost due to the pandemic, but as but one example, the US lost 10% of its oil refining capacity in 2019-2021.
So now they are trying to tame the resulting supply side driven inflation with the blunt instrument of interest rates to tame demand. What they will likely achieve is to deflate the asset price inflation that they have driven with QE, while having minimal impact on consumer and producer prices.
Now there are the myriad supply dislocations due to the Russian invasion of the Ukraine, which monetary policy can do nothing about. In truth the co-ordination between monetary and fiscal policy evident during the pandemic should have been continued, particularly as fiscal and legislative measures would be more effective (to an extent) in curbing some of the supply side inflation pressures, even though a geo-politically fragmented world make this less effective.
The fact that the monetary (QE) stimulus is being withdrawn at the same time as the fiscal stimulus bodes poorly, and may in fact only serve to amplify the already sharp impact of supply side inflation problems on economic growth prospects”.
Australian inflationary Challenges Ahead
The main factors the committee sighted that are inciting domestic inflationary pressures are constraints in some business sectors of the economy and the tight labour markets has been contributing to the upward pressure on prices. The floods earlier this year have also affected some prices as well. The Central Bank also said that, “Inflation is expected to increase further, but then decline back towards the 2-3 percent range next year.
Australians are facing here high prices in electricity and gas and recent increases in petrol prices makes chances stronger that inflation is going to hang around in the long run . 
Be sure to catch OUR previous RBA Central Bank story here, that will provide more context to the events leading up to present economic situation, –Reserve Bank of Australia Hikes Interest Rates to .35 Percent, While Inflation turns up. we highlighted the various ongoing inflation challenges that Australians have been facing back in May 2022 last Interest Rate decision rate hike.
The RBA Central bank Board Hint’s that More Interest rate Hikes May be need to Thwart Inflation
According to the Reserve Bank of Australia governing Board: “Today’s increase interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic. The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed. The Board expects to take further steps in the process of normalizing monetary conditions i 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 labor market.
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Contributing Expert Economist
Marc Ostwald an expert Chief Economist & Global Strategist with ADM Investor Services International
Marc Osterwall is a world renowned Expert Economist who Analyzes and forecast macro/microeconomic trends and central bank policies on a exponential economic level. Mr. Osterwall is a regular guest on Bloomberg BNN, HT & Radio, BBC, CNBC, Le Fonti International and is widely quoted on newswires, newspapers, and other digital media worldwide. He is also a regular conference speaker and guest lecturer at various universities.
