The RBA’s Michele Bullock yesterday said:
In the title of this speech I posed the question ‘How are households placed for interest rate increases?’ There are a number of ways to come at this question – aggregate data, disaggregated data and scenarios. On balance, though, I would conclude that as a whole households are in a fairly good position. The sector as a whole has large liquidity buffers, most households have substantial equity in their housing assets, and lending standards in recent years have been more prudent and have built in larger buffers for interest rate increases. Much of the debt is held by high-income households that have the ability to service their debt and many borrowers are already making repayments well above what is required. Furthermore, those on very low fixed-rate loans have some time to prepare themselves for higher interest rates.
This shows that the bank has learned absolutely nothing over the decade or more that it has become little more than a house price manager.
What will matter to households is not the aggregate levels of debt but the rate of change in repayments and prices.
As these two are smashed, households will naturally freak out and their spending patterns will drop accordingly. As they do, unemployment will rise and inflation cool (at least it would if Albo’s cowards do something about energy).
That’s the point of hiking rates, right? Which rather begs the question: why is Bullock arguing against it?
The answer is that the RBA has a PhD in arse covering, which is one reason why its forecasting record on EVERYTHING is so horrendous.
This is the first problem for this crew:
Treasurer Jim Chalmers has launched a major review of the Reserve Bank of Australia’s long-standing inflation target, monetary tools, board structure, accountability and culture, amid growing criticisms of the central bank’s interest rate policies,
Canadian central banker Carolyn Wilkins, Australian National University economics professor Renee Fry-McKibbin and former senior Treasury official Gordon de Brouwer will jointly conduct the first independent review of the bank since its arrangements were instituted in the early 1990s.
The RBA has a closeted culture that refuses engagement with all outside intellect. It must be opened up to intellectual engagement, though not done so such that banking parasites can capture it.
The second major reform needed is to bang back together with APRA, which this review does now appear to cover. A major oversight given macroprudential tools are as important as the cash rate.
The third reform is to scrap a board structure that implicitly hands the bank to captains of industry.
