Australian interest rates

Terry McCrann wrote a strange article in the Weekend Australian arguing that the Reserve Bank of Australia’s (RBA) interest rate hikes are actually “super stimulatory” because the real interest rate has fallen: In Australia, at the end of 2021, the RBA’s official cash rate was 0.1 per cent.

Australia’s auction results rallied for the third consecutive week, with the preliminary clearance rate lifting above 60% for the first time since early June after 61.5% of auctions returned a successful result (up 2.0% from last week): The rebound nationally was driven by Melbourne, whose preliminary clearance rate rebounded to 65.5%.

Comparison site Finder estimates that the average mortgage interest rate would rise to 5.85% if the official cash rate (OCR) reaches 2.5%.

Deloitte’s weekly economics briefing notes that the housing market is becoming a key driver of Australia’s inflationary pressures: Housing was one of the key contributors to the latest CPI reading (alongside transport and household goods), growing 9.0% through the year to June.

Roy Morgan has released it July inflation expectations survey, with inflation expectations hitting their highest level since August 2012.

Until recently, oil was busy wrecking the business cycle.

An interesting fault line has developed between Australia’s economists on interest rates. On the hawkish side are outfits like ANZ and Westpac, who basically hold the market’s view that the official cash rate (OCR) will soar to a peak of 3.35%, meaning the RBA is only about half way through its monetary tightening cycle.

CBA’s head of Australian economics, Gareth Aird, has released a note explaining why he believes that the market’s projected official cash rate (OCR) for Australia – currently tipped to peak at 3.35% in March 2023 – remains too bullish.

Here it is from the horse’s mouth.

CoreLogic’s preliminary auction results for the weekend report a slight rebound in clearances; albeit off relatively thin volumes. Across the combined capital cities, the clearance rate was 59.5% – up from 58.8% the previous weekend (later revised to 54.0% at final figures).

My own view is that this is wrong.

The market is caught between two poles.

The RBA has already overcooked the tightening cycle.

Data released on Tuesday by the Australian Bureau of Statistics (ABS) shows that mortgage commitments fell by 4.4% June, which was the biggest monthly decline since May 2020.

In June, economists lashed the Reserve Bank of Australia (RBA) for relying on business liaison, rather than actual data, to claim that Australian wage growth was strong.

The ABC published an article neatly explaining why rising interest rates necessarily means that house prices will fall.

The Melbourne Institute’s monthly inflation gauge rose by 1.2% in July.