In my previous post, I discussed my latest podcast chat with Morgans Chief Economist Michael Knox who forecast the RBA would today increase the cash rate to 0.85%, as it did. As Michael noted, the RBA has been copying the US Federal Reserve (with a slight lag now) since late 2020. See the chart below comparing the RBA’s overnight cash rate target with the US Effective Federal Funds Rate (currently 0.83%). One reason this is the case is the RBA is wanting to avoid a significant depreciation of the currency which would contribute to inflation through higher prices of imported goods (see my 7 May post Economic update: interest rates, monetary policy, fiscal policy, and coal prices).

From what I can tell, Michael was the only market economist who forecast a 50 basis points increase in the cash rate to 0.85%, so he’s definitely going into the Economic Forecasting Hall of Fame for this successful prediction. Take a bow Michael Knox. If you’re a QEW reader and you’re not following Michael’s commentary already, you should consider either following his podcast or his YouTube videos on the Morgans channel.

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