The big interest-rate question we are all asking ourselves is, “Are we there yet?”
The unfortunate answer is no.
After turning up very late to the rate-hiking table to fight off inflation, the official cash rate at 2.35% is now close to the RBA’s neutral setting of 2.50%.
Returning inflation to 2-3% over time is RBA’s stated key focus. This is the RBA’s happy place where the economy can grow in an orderly and sustainable way.
RBA – “It is seeking to do this while keeping the economy on an even keel.”
By any measure the speed and magnitude of the rise in official interest rates has been drastic. Especially in light of the RBA Governor famously proclaiming that he was unlikely to move interest rates up until 2024.
Australia’s inflation problem doesn’t seem as pronounced as the USA, UK and Europe but it is still expected to hit 7.75% later this year. As closely intertwined as the world is, Australia is not the USA.
It takes time to tame inflation
Australia is one of the most privately indebted countries in the world and the majority of our home loans are variable. Even the fixed rate loans are short dated—1 to 5 years. Compare this to the USA where it’s not uncommon for people to take out 10, 20 and 30 fixed rates loans.
Has the RBA done enough? The challenge with raising interest rates to slow the economy and tame inflation is that it takes time to properly wash through the economy. The full extent of interest rate rises to date probably won’t be properly felt on consumers’ plates until Christmas.
Where to next for interest rates?
RBA – “The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market”.
RBA Governor is in the headlights
The RBA Governor cannot afford to make another mistake given his past blunders and the review that is being conducted into the RBA. The spotlight on the RBA Governor is currently blindingly bright. For this reason and for the fact we are close to the RBA’s neutral, I think the next move by the RBA on 4 October 2022, will be a 0.25% hike.
I must admit this week’s high USA inflation print and the potential for a 1.00% lift in their official cash rate is cause for concern. However the RBA still has plenty of scope to raise official interest rates to 3.10% if required before Christmas. Even if it just does 3 x 0.25% hikes.
Whether the RBA hikes the cash rate by 0.25% or 0.50% increments, it will be a fine tuning exercise based on the data that presents itself going forward.
Let’s see!
Are we there yet?
The big interest-rate question we are all asking ourselves is, “Are we there yet?”
The unfortunate answer is no.
After turning up very late to the rate-hiking table to fight off inflation, the official cash rate at 2.35% is now close to the RBA’s neutral setting of 2.50%.
Returning inflation to 2-3% over time is RBA’s stated key focus. This is the RBA’s happy place where the economy can grow in an orderly and sustainable way.
RBA – “It is seeking to do this while keeping the economy on an even keel.”
By any measure the speed and magnitude of the rise in official interest rates has been drastic. Especially in light of the RBA Governor famously proclaiming that he was unlikely to move interest rates up until 2024.
Australia’s inflation problem doesn’t seem as pronounced as the USA, UK and Europe but it is still expected to hit 7.75% later this year. As closely intertwined as the world is, Australia is not the USA.
It takes time to tame inflation
Australia is one of the most privately indebted countries in the world and the majority of our home loans are variable. Even the fixed rate loans are short dated—1 to 5 years. Compare this to the USA where it’s not uncommon for people to take out 10, 20 and 30 fixed rates loans.
Has the RBA done enough? The challenge with raising interest rates to slow the economy and tame inflation is that it takes time to properly wash through the economy. The full extent of interest rate rises to date probably won’t be properly felt on consumers’ plates until Christmas.
Where to next for interest rates?
RBA – “The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market”.
RBA Governor is in the headlights
The RBA Governor cannot afford to make another mistake given his past blunders and the review that is being conducted into the RBA. The spotlight on the RBA Governor is currently blindingly bright. For this reason and for the fact we are close to the RBA’s neutral, I think the next move by the RBA on 4 October 2022, will be a 0.25% hike.
I must admit this week’s high USA inflation print and the potential for a 1.00% lift in their official cash rate is cause for concern. However the RBA still has plenty of scope to raise official interest rates to 3.10% if required before Christmas. Even if it just does 3 x 0.25% hikes.
Whether the RBA hikes the cash rate by 0.25% or 0.50% increments, it will be a fine tuning exercise based on the data that presents itself going forward.
Let’s see!
by Boris Sfiligoi
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