\u2018Out of control\u2019: Brisbane house prices up $149k in one year<\/a><\/p>\n![\"\"\/](\"data:image\/svg+xml,%3Csvg)
<\/p>\n
The market has swung to 72 per cent chance of a rate hike.<\/p>\n
\u201cFailure to hike rates in February risks letting the inflation genie back out of the bottle, raising the risk of steeper rate hikes later in the year,\u201d the bank note said.<\/p>\n
\u201cOn the flip side, a timely 25bp hike is highly unlikely to derail the broader economic recovery, but instead could stem inflation risks early.\u201d<\/p>\n
This as the market swung to 72 per cent odds on Friday that the RBA would lift rates to 3.85 per cent at its February monetary policy meeting. <\/p>\n
The CBA analysis defended the RBA\u2019s previous patient approach as sensible when battling supply-side shocks, but warned circumstances have fundamentally shifted.<\/p>\n
\u201cPreviously they faced a series of supply-side shocks,\u201d the CBA paper said. \u201cToday we face a very different situation. Pressure has started to come from the demand side of the economy and there still isn\u2019t much, if any, \u2018slack\u2019 or room to manoeuvre on the supply side.\u201d<\/p>\n
It warned \u201cin many ways, this is a more dangerous recipe and needs a very different strategy \u2013 decisiveness is now in order, not patience\u201d.<\/p>\n
<\/p>\n
What the RBA board did with interest rates in the past year \u2013 effective date, change % and cash rate target %.<\/p>\n
The bank argues if RBA holds rates steady hoping that inflation eases on its own, this would be \u201cplaying with fire\u201d. <\/p>\n
The CBA paper said if inflation and growth pressures continue building, the RBA would then quickly find itself \u201ca long way behind the curve\u201d and be forced to hike harder to tame inflation \u201cwith more severe damage to the jobs market.\u201d<\/p>\n
However, if the RBA raises rates by 0.25 percentage points on Tuesday and inflation pressures prove less acute, \u201cthe cost is likely to be marginal\u201d.<\/p>\n
\u201cIn other words, a timely 25bp hike now won\u2019t crash the economy, but it could prevent a sharp rise in inflation and a steeper rate hiking cycle,\u201d the analysis said.<\/p>\n
This comes as RBA deputy governor Andrew Hauser recently stated \u201cinflation above 3 per cent \u2013 let\u2019s be clear, it\u2019s too high\u201d.<\/p>\n
The warning comes as the revamped RBA Monetary Policy Board continues to find its feet. \u2013 with CBA economist Luke Yeaman finding it now places slightly more weight on balancing its dual mandate of full employment and inflation.<\/p>\n
He said this \u201cshould not be mistaken for hesitancy or a willingness to accept above target inflation\u201d. <\/p>\n
\u201cThe bar may be a little higher, but if there is a clear case to act based on the data, we expect the Board will respond.\u201d<\/p>\n
CBA expects the RBA Board to hike rates by 0.25 percentage points at Tuesday\u2019s meeting to bring the cash rate target to 3.85 per cent.<\/p>\n
\u201cWith trimmed mean inflation sitting well above the target band for two quarters, a strengthening economy and falling trend unemployment, the case for action is compelling and the risk of hesitating is large.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"CBA has warned of stark consequences if RBA does not act on rates Tuesday. One of Australia\u2019s biggest…\n","protected":false},"author":2,"featured_media":453524,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":{"0":"post-453523","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/453523","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=453523"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/453523\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/453524"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=453523"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=453523"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=453523"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}