RBA hikes to 3.60pc
I haven’t given up on blogging; I’m just suffering an annoying and prolonged internet outage in Noosa.
Will just tap out a few thoughts on my i-Phone today instead.
The Reserve Bank of Australia hiked the cash rate target as expected to 3.60 per cent yesterday.
The wording of the accompanying Statement was notably more dovish, however.
The release acknowledged that inflation in Australia has very likely already peaked, the total absence of runaway wages growth (and thus risk of a wages-price spiral), and that monetary policy operates with a lag.
Household consumption growth has stalled, and the household saving ratio is already closing in on zero.
Removed was the reference to the expectation of further interest rate increases (plural) in favour of further policy tightening, suggesting the possibility of one more hike, and potentially a shift to QT.
New home sales and lending for new construction have been absolutely battered to 15-year lows, so there was no surprise today that Governor Lowe noted that policy is now in restrictive territory.
The transmission mechanism of monetary policy in Australia tends to be very effective, due to most mortgage balances being on variable rates (or short-term fixed rates).
There will be huge interest in the next jobs report, which is expected to show a bounce-back in employment after last month’s seasonal drop - though Roy Morgan’s survey has shown that record high immigration is quickly tackling the labour shortages (and in all likelihood will soon see a sharp rise in underemployment/unemployment).
Close to the top
We’re getting close/closer to a pause, then, and markets are as yet undecided on whether interest rates will be hiked again in April.
Of course policymakers will be watching the data closely from here.
Australia’s 2-year bond yield is trading back below 3.5 per cent, and the important benchmark 3-year yield is trading a bit lower at 3.4 per cent.
Rental crisis worsens
There’s not much justification for it, then, but prospective landlords are being stress-tested for mythical mortgage rates of around 9 per cent, with the abnormally paternalistic assessment buffer in place.
Meanwhile, reports the ABC, more and more people are living in tents, cars, in riverbanks, under bridges, or are outright homeless.
Of course there are various issues involved here in the dearth of available rentals - the abject lack of social housing investment in particular.
The only reason I can think of for this approach is to keep all policy as tight as possible until the inflation risk is definitively buried - but there are some serious issues afoot in the rental market (which, by the way, are inflationary, with rents rising by 20-30 per cent in many cases).