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CBA (ASX:CBA) says the RBA will raise interest rates in 2022

Economists at Commonwealth Bank of Australia (ASX: CBA) believe that the RBA is going to increase the interest rate in 2022.

What is CBA saying about the interest rate?

Australia’s biggest bank has put out a call that the Reserve Bank of Australia (RBA) is going to increase the rate as early as next year.

According to reporting by the Australian Financial Review, CBA has forecast that the RBA will be forced to increase the interest rate to 0.25% in November 2022 – up from 0.1%.

CBA also believes that another rate increase will come in December 2022 to 0.5%, with three more increases in 2023 to be at 1.25% by the third quarter.

The AFR reported this tightening scenario is conditional upon fiscal policy remaining expansionary, and the border opening to immigrants in mid-2022, although at a slower rate than pre-COVID-19.

The newspaper quoted CBA’s boss of Australia economics Gareth Aird, who said: “We still believe that abandoning yield curve control at the July board meeting is the most appropriate policy decision given the strength of the Australian economy. But the RBA has taken that option off the table.”

Could this mean bad news for asset prices?

There are widespread impacts that could occur. For starters, Aussies with cash in the bank might like the sound of earning a bit more from their money.

Magellan Financial Group Ltd (ASX: MFG) has this Warren Buffett quote from the 1994 Berkshire Hathaway annual general meeting (AGM):

“The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature … its intrinsic valuation is 100% sensitive to interest rates.”

Mr Buffett also has this quote comparing interest rates to gravity: “Interest rates are to asset prices what gravity is to the apple. When there are low interest rates, there is a very low gravitational pull on asset prices.” That means higher interest rates theoretically mean lower asset prices.

As interest rates rise, I think it’s likely that volatility will increase. Assets probably probably won’t be priced as highly.

The prospect of buying shares at lower prices sounds appealing, though it may not be so good for the existing portfolio. There could be some good opportunities in the ASX growth shares space in the coming months and years.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.

(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)

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Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, Jaz owns shares of Magellan.
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