Out of cycle rate hikes imminent? Via Damien Boey at Credit Suisse:
Christmas has come early for the RBA. Real GDP growth is above 3%, earlier than expected, and core CPI inflation is gradually returning back to target. Almost everything that is needed to justify the Bank’s desired path of tightening, is in place.
Almost. Real GDP growth may not hold up in 2Q. But regardless of the data, the one thing that can, and likely will, de-rail the Bank’s intended tightening plans is the state of money markets. Interbank credit spreads are back at financial crisis highs. And our modelling suggests that we should expect to see both sharp tightening of bank lending standards, and out of cycle rate hikes. Therefore, even without doing anything, the RBA will find that financial conditions are getting tighter.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
