It’s likely another 0.25% official RBA rate-rise is on the cards for Tuesday 6 December 2022.
Based on the recent data the RBA will see it as taking out further insurance against inflation before the summer break.
I’d be surprised if the RBA doesn’t raise interest rates again when;
-non-discretionary inflation is strong,
-wages growth has picked up and is surging in the private sector,
-unemployment has sunk to 48 year lows at 3.4% and
-retail spending, while slowing, is nominally still chugging along at a solid clip.
Contradicting Indicators
The data indicators that really contradict this picture are consumer sentiment (which sits at almost pandemic lows), and the 10% drop is house prices. However from my anecdotal evidence everyone keeps spending and it’s impossible to get a tradie to turn up.
The accumulated pandemic savings and 2 missed pandemic years have created the breakout spending in 2022. However our savings rates are now almost back to pre-pandemic levels.
Is a slowdown coming ?
The speed and magnitude of interest rates rises in 2022 are going to catch up and bite in 2023. Interestingly the CEO for the ports of Los Angeles and Long Beach California, which handles 40% of all containers entering USA, says it’s the quietest he has seen activity since 2009 (think GFC), ahead of the busiest shopping period of the year.
The RBA is going to have its work cut out in 2023 trying to find the right balance;
RBA – “The Board will continue to monitor the global economy, household spending and price- and wage-setting behaviour closely. The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
Borrowing capacity to bite
Increasingly higher interest rates are having a real impact on borrowing capacity with reductions in both residential and commercial settings. Many commercial borrowers are likely to be challenged by their banks as annual or semi-annual reviews come about and their covenants are tested especially ICR (interest cover ratio).
It’s clear that 2023 is going to be a bumpy ride for the global and Australian economy and quite likely a roller coaster for interest rates.
Let’s see!
Will there be another RBA rate rise?
It’s likely another 0.25% official RBA rate-rise is on the cards for Tuesday 6 December 2022.
Based on the recent data the RBA will see it as taking out further insurance against inflation before the summer break.
I’d be surprised if the RBA doesn’t raise interest rates again when;
-non-discretionary inflation is strong,
-wages growth has picked up and is surging in the private sector,
-unemployment has sunk to 48 year lows at 3.4% and
-retail spending, while slowing, is nominally still chugging along at a solid clip.
Contradicting Indicators
The data indicators that really contradict this picture are consumer sentiment (which sits at almost pandemic lows), and the 10% drop is house prices. However from my anecdotal evidence everyone keeps spending and it’s impossible to get a tradie to turn up.
The accumulated pandemic savings and 2 missed pandemic years have created the breakout spending in 2022. However our savings rates are now almost back to pre-pandemic levels.
Is a slowdown coming ?
The speed and magnitude of interest rates rises in 2022 are going to catch up and bite in 2023. Interestingly the CEO for the ports of Los Angeles and Long Beach California, which handles 40% of all containers entering USA, says it’s the quietest he has seen activity since 2009 (think GFC), ahead of the busiest shopping period of the year.
The RBA is going to have its work cut out in 2023 trying to find the right balance;
RBA – “The Board will continue to monitor the global economy, household spending and price- and wage-setting behaviour closely. The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
Borrowing capacity to bite
Increasingly higher interest rates are having a real impact on borrowing capacity with reductions in both residential and commercial settings. Many commercial borrowers are likely to be challenged by their banks as annual or semi-annual reviews come about and their covenants are tested especially ICR (interest cover ratio).
It’s clear that 2023 is going to be a bumpy ride for the global and Australian economy and quite likely a roller coaster for interest rates.
Let’s see!
by Boris Sfiligoi
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