Dovish pivot
The Reserve Bank of Australia hiked the cash rate target by a slower 25 basis points to 2.60 per cent.
It's the highest cash rate target in 9 years, and the first time it's been above 2½ per cent since August 2013.
Most economists had been calling for a hike 50 basis points, with a few notable exceptions.
The most obvious standouts were Gareth Aird (CBA), Shane Oliver (AMP), as well as Stephen Koukoulas (Market Economics), and the excellent James Glynn at the Wall Street Journal.
Michele Bullock of the RBA had highlighted recently why Australia doesn't face the same challenges as some other countries with regards to the risk of a wages growth spiral and inflation.
Most borrowers here are on variable rate mortgages (or short-term fixed rate loans), so the transmission mechanism of monetary policy is different, while household debt levels are also relatively higher in Australia.
I wouldn't mind a bet that we'll also see record high population growth over the next couple of years now the borders are open, which will quite quickly take the pressure off labour force capacity constraints and wage price pressures.
Given the full impacts of the previous rate hikes haven't yet been felt - and given the US and European data seems to be rolling over practically by the day, including for price pressures - it makes perfect sense to slow the pace of hikes to 25 basis points, to take stock of where things are at between now and February.
Aird now sees the terminal cash rate for this target as being at 2.85 per cent...and his analysis has been nonpareil good so far, so we're probably getting quite close to the top.
