After a roaring 2022, what does 2023 hold in store for us especially with interest rates?
2023 for interest rates, looks like being a year of two-halves…
…In the first half, it’s very likely that the RBA will tap the interest rate brakes again to ensure inflationary growth is securely contained. Inflation appears to be flattening out—maybe even rolling over. We will be able to read this better when the December 2022-quarter inflation numbers are released 26 January 2023…
…In the second half the full effects of 2022’s steep interest rate rises should have properly worked their way through the economy. By this stage anaemic economic growth could even feel recessionary and RBA interest rates should well and truly be on hold.
Squeezing consumers further in the second half of 2023, will be $370 billion-worth of home loans coming off 2- & 3-year pandemic-low fixed rates, converting to current rates around two thirds higher. This is when interest-rate bill-shock will truly hit ‘home’.
While it seems like we are approaching the top of this interest-rate cycle, the RBA needs to feel it is back in control of inflation for it to consider pausing interest rate rises. Given its past messaging blunders, the RBA can’t afford to mess with the public’s head by chopping and changing too much.
Their moves need to be deliberate and clear.
Features to watch out for in 2023.
Lingering Inflation
If inflation lingers, the RBA will be required to keep interest rates higher for longer. We know the RBA’s priority is to return inflation to 2-3% over time, but inflation is a difficult beast to break and it may take more time and effort than expected.
RBA states – “High inflation damages our economy and makes life more difficult for people. The Board’s priority is to re-establish low inflation and return inflation to the 2–3 per cent range over time.”
RBA to talk tough
Expect the RBA to talk tough but only raise interest rates if necessary. For Australia, one of the most privately indebted countries in the world, the last thing the RBA wants to do is to continue to hurt families by raising interest rates. I think the RBA will try to jawbone their way to curbing demand in 2023.
Wages growth
Given tight labour markets, wages growth is going to be a continuing concern for the RBA especially on its impact on services’ inflation. Wages feed into everything and avoiding a wages-price spiral is high on the RBA’s 2023 wish list.
RBA states – “The Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.
In 2023 the RBA is going to have to thread the needle. It looks like being a year of mopping up the excesses created by the stimulus and spending of the past couple of Covid-years.
Maybe we could even call it a hangover year.
Let’s see.
Interest Rates 2023 – the year ahead
After a roaring 2022, what does 2023 hold in store for us especially with interest rates?
2023 for interest rates, looks like being a year of two-halves…
…In the first half, it’s very likely that the RBA will tap the interest rate brakes again to ensure inflationary growth is securely contained. Inflation appears to be flattening out—maybe even rolling over. We will be able to read this better when the December 2022-quarter inflation numbers are released 26 January 2023…
…In the second half the full effects of 2022’s steep interest rate rises should have properly worked their way through the economy. By this stage anaemic economic growth could even feel recessionary and RBA interest rates should well and truly be on hold.
Squeezing consumers further in the second half of 2023, will be $370 billion-worth of home loans coming off 2- & 3-year pandemic-low fixed rates, converting to current rates around two thirds higher. This is when interest-rate bill-shock will truly hit ‘home’.
While it seems like we are approaching the top of this interest-rate cycle, the RBA needs to feel it is back in control of inflation for it to consider pausing interest rate rises. Given its past messaging blunders, the RBA can’t afford to mess with the public’s head by chopping and changing too much.
Their moves need to be deliberate and clear.
Features to watch out for in 2023.
Lingering Inflation
If inflation lingers, the RBA will be required to keep interest rates higher for longer. We know the RBA’s priority is to return inflation to 2-3% over time, but inflation is a difficult beast to break and it may take more time and effort than expected.
RBA states – “High inflation damages our economy and makes life more difficult for people. The Board’s priority is to re-establish low inflation and return inflation to the 2–3 per cent range over time.”
RBA to talk tough
Expect the RBA to talk tough but only raise interest rates if necessary. For Australia, one of the most privately indebted countries in the world, the last thing the RBA wants to do is to continue to hurt families by raising interest rates. I think the RBA will try to jawbone their way to curbing demand in 2023.
Wages growth
Given tight labour markets, wages growth is going to be a continuing concern for the RBA especially on its impact on services’ inflation. Wages feed into everything and avoiding a wages-price spiral is high on the RBA’s 2023 wish list.
RBA states – “The Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.
In 2023 the RBA is going to have to thread the needle. It looks like being a year of mopping up the excesses created by the stimulus and spending of the past couple of Covid-years.
Maybe we could even call it a hangover year.
Let’s see.
by Boris Sfiligoi
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