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Economic Update RBA keeps interest rates on hold

Commenting on the RBA’s decision to hold interest rates today, Creditorwatch Chief Economist Harley Dale said:

We have seen tentative signs of re-emerging inflationary pressures, albeit heavily influenced at this stage by COVID-related pressures. Bond yields are rising, and the Aussie dollar has recovered some ground. The rapid easing in lockdown restrictions has opened pent-up demand for consumer services. Many businesses are set to go and as vaccination levels reach the critical levels required, the outlook is positive.

The future doesn’t lack bumps. We all knew we would reach this situation in the December 2021 quarter but now we are living it. Opening means considerably stronger demand and better times for Small and Medium-sized Enterprises. A key issue is that this changing economic environment is occurring within a landscape of persistent supply disruptions.

Against this backdrop, it will be a challenging trading environment for SMEs – we are not going to see the economic recovery occur in a neat straight line. Supply disruptions could crimp already tight margins and hamper the ability of some SMEs who have worked so hard through lockdowns to survive. It would be nice to tell a universally positive story, but that’s the nature of the pandemic.

The RBA is under the pump as the prospects of earlier than expected interest rate rises mount. Market interest rates will rise in the interim, or so everybody expects. The CreditorWatch monthly Business Risk Index will reveal leading indications of what a post lockdown world looks like for the business community, now that we’ve entered the latest economic ‘world’.

As economic conditions move in a way that is sometimes evolving and sometimes revolutionising, the RBA is sticking to its record low interest rate policy, but not necessarily the timing of it. On December 7th we will receive the final RBA statement until February 1st, 2022. The December statement will be a key update given the Bank will have had the opportunity to scrutinise an increasing amount of information regarding post lockdown economic outcomes.

The December RBA Monetary Policy Announcement will be the most important of 2021. December 7th is game day.