Lowe speaks on interest rates
The RBA Governor unveiled tidy speech in Sydney today, explaining why interest rates are on pause (and why rates will likely peak at a lower level in Australia than in some other countries).
Domestic demand has already been hammered by the rate hikes delivered to date.
Meanwhile good prices are set to fall in Australia as shipping rates revert lower.
Governor Lowe pointed out that wages growth is not 5-6 per cent in Australia as in some other countries, it's only a meagre 3½ per cent.
And, importantly, because most mortgages are on variable rates (or short-term fixed rates) the reaction function is totally different.
Mortgage rates for households have lifted more quickly, and consumer sentiment has been absolutely battered already.
The proliferation of variable rate debt is actually a very useful feature of Australia's economy, allowing policy to be adjusted more effectively.
As such, markets are pricing no further interest rate hikes (and indeed steady declines over the next few years).
The one area which is expected to see ongoing inflation is in rents, due to a massive housing shortage in the large capital cities.
However, interest rate hikes would not help here - actually the opposite - and household sizes may well increase again over time.
Very few people wanted to utilize share housing during the lockdowns, but this trend may now have passed.
