Holding the line
The Reserve Bank of Australia's Christopher Kent made the case for monetary policy being sufficiently restrictive in a banking conference speech this morning in Melbourne.
After a period of stimulatory policy, the cash rate target is now at a level at 4.35 per cent, which is some way above the estimated nominal neutral rate.
Scheduled mortgage repayments have increased to a record 10 per cent of household disposable income.
However, there's also far less consumer credit now than there was in 2008, which has cushioned the blow somewhat, reported Mr. Kent.
Payments into offset and redraw accounts have broadly continued along a similar path as before.
Household gross saving rates have been crushed lower by interest rate hikes, as one might expect...
...and with more borrowers struggling to repay mortgages, housing loan discharges suggest more property owners are selling up to reduce debt exposures.
In summary, then, financial conditions are pretty restrictive then.
Concluded the said speech:
Source: Reserve Bank of Australia
We can see all of this in five consecutive quarters of negative GDP growth in per capita terms, very weak household consumption figures, and tumbling building approvals at the lowest level in well over a decade.
In other news, APRA's John Lonsdale delivered a speech today opening up the debate on whether the banking industry has become too risk averse, unnecessarily cutting off access to credit.
It's something we've chatted about on blogs and podcasts quite a lot over the past year, with a significant dwelling shortage banking up (well, there are numerous tent cities out there, let's be honest) and credit extremely tough to come by for many borrowers, with a 3 percentage points assessment buffer being used as a stress test for anyone wanting to buy or build a home.
Lonsdale made some good points about the benefits of additional regulation.
But while tighter regulations have been beneficial over time - with interest-only lending annihilated since 2017, and banks are now very well capitalised, which is an amazing development - it's hard to believe that stress-testing borrowers at 9½ per cent assessment rates is adding much value at this point in the cycle (personal view).
Most often mortgage arrears are caused by loss of employment rather than rate hikes, although granted, of course, the past few years has seen a period of extraordinary volatility.
Monthly inflation sticky
Two year ago, Australia saw the introduction of a monthly inflation gauge by the Australian Bureau of Statistics.
It's a new gauge, it doesn't cover the full inflation basket, and commentators regularly caution about mapping across monthly figures to the official quarterly inflation data due to its limited coverage.
Of course, everyone just goes ahead and does so anyway, and although monthly 'inflation' was actually slightly negative in May 2024, there was a big negative reading dropping off the annual reading, taking the year-on-year inflation back up figure from 3.6 per cent to 4 per cent.
For the next 4 months consecutively, the opposite will be true for the annual inflation figure, meaning that by the September figure annual inflation will soon be down to around 3 per cent or below.
That having been said, the trimmed mean inflation figures in today's release did look sticky, so the quarterly inflation data to be released on 31 July will be watched extremely closely to see whether the Reserve Bank needs to tap on the brakes again in August.
The annual inflation figure of 4 per cent was largely due to large increases in electricity prices and rents.
The government is firing off a range of new cost of living subsidies for the new financial year to push down headline inflation mechanically, but still the RBA will want to see core inflation trending back down towards the 2 to 3 per cent target for peace of mind.
I can't analyse the monthly inflation data better than the king of ausbiz commentary James Foster, so I won't even try...and you can read
his excellent summary here.
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