Exploring Australia’s New Monetary Order – Oliver Wyman
(29 April 2024 – Global) In the wake of the first significant interest rate tightening cycle in more than two decades, Oliver Wyman questions how the financial sector and broader economy will be impacted through the lens of four scenarios to explore how uncertainties may evolve.
In the aftermath of the global financial crisis (GFC), the world entered a prolonged period of declining interest rates known as the “Low for Long” era. The Reserve Bank of Australia (RBA) cash rate consistently declined throughout the period, bottoming out at 0.10 percent in November 2020 in response to the pandemic. This paradigm shifted with the onset of rapid interest rate hikes in 2022, heralding a “New Monetary Order”. Four scenarios considered include -
- Rate and inflation slowly returning to normal levels
- High rates causing a sharp economic downturn
- Rates and inflation remaining higher for longer without causing an economic downturn
- Private debt filling structural lending gaps
“Australia and other developed economies around the world are on a path into unknown territory regarding monetary policy. The New Monetary Order presents a set of unique challenges and opportunities to financial institutions that will require them to reactivate long-forgotten muscles and develop new ones. While the forces that will shape the New Monetary Order in Australia are already visible, the playbook is still being written each day. It will look different from the playbook of the past decade” commented report co-author, Oliver Wyman Partner, Ross Eaton.
“As for every new era, this one will create winners and losers. The sooner leaders start to act, the better their chances are to emerge on top.”
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