Aussies Will Fail to Stop Prices Surging, Like the Rest of Them - Forex News by FX Leaders
Inflation continues to increase globally

Aussies Will Fail to Stop Prices Surging, Like the Rest of Them

Posted Wednesday, June 8, 2022 by
Skerdian Meta • 2 min read

Central banks have gone on a frenzy on interest rates, increasing them several times and planning to do so in the coming meetings. They have been talking up a big game in the battle against inflation but at the end of the day, they are rather powerless when it comes to significantly turning the tide of the battle as prices keep increasing.

You don’t really have to look very far for an example of that. After the major slowdown in UK services last month, the Bank of England is what every other central bank wishes they do not become. They have been among the first to start raising interest rates last year, but prices keep increasing, while the consumers and the economy are starting to suffer.

The Reserve Bank of Australia increased interest rates for the second time early this morning, this time by 50 bps, bringing them to 0.80% from 0.35% last month, although the AUD keeps following the market sentiment and prices are not stopping.

Central bankers keep insisting on the point that they are “doing their job” when it comes to battling against inflation. However, the irony is that they barely have any influence in the debate especially when the lack of fiscal inaction leads to price increases. That is not something that the BOE can control. And neither are supply chain bottlenecks, surging energy prices, or geopolitical issues involving sanctions.

It is just an illusion that they are trying to sell but sadly, they might very well have to admit that all of this didn’t help at all if the economy starts to crack under the pressure of everything else.

It is easy to point fingers and scrutinize the BOE or the RBA for such “mismanagement” but the fact is that central banks have a mandate to follow and the less talked about point is how politicised every institution has become these days. No policymaker wants to burn bridges and none of them are willing to say what needs to be said.

That being the central bank toolkit is not the right one to be dealing with the current inflation problem. Governments are more well-equipped and should be leading the initiative. Yet, not one policymaker has come out to point that out in a meaningful way. I think we all can get that if central banks don’t act, the problem might be worse. But there is no illusion here, the economy will tank as prices go up and mortgage/loan rates go up as well. It’s sad that integrity and central banking are two things, both of which might now be mutually exclusive.

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