Lunatic RBA steers Australia toward recession with 0.5% rate hike

As expected, the Reserve Bank of Australia (RBA) has just dealt a big blow to mortgage holders, hiking the official cash rate (OCR) by 0.5%, taking it to 1.3%

Below is the official statement [my emphasis]:

At its meeting today, the Board decided to increase the cash rate target by 50 basis points to 1.35 per cent. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 1.25 per cent.

Global inflation is high. It is being boosted by COVID-related disruptions to supply chains, the war in Ukraine and strong demand which is putting pressure on productive capacity. Monetary policy globally is responding to this higher inflation, although it will be some time yet before inflation returns to target in most countries.

Inflation in Australia is also high, but not as high as it is in many other countries. Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role. Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices.

Inflation is forecast to peak later this year and then decline back towards the 2–3 per cent range next year. As global supply-side problems continue to ease and commodity prices stabilise, even if at a high level, inflation is expected to moderate. Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services. Medium-term inflation expectations remain well anchored and it is important that this remains the case. A full set of updated forecasts will be published next month following the release of the June quarter CPI.

The Australian economy remains resilient and the labour market is tighter than it has been for some time. The unemployment rate was steady at 3.9 per cent in May, the lowest rate in almost 50 years. Underemployment has also fallen significantly. Job vacancies and job ads are both at very high levels and a further decline in unemployment and underemployment is expected over the months ahead. The Bank’s business liaison program and business surveys continue to point to a lift in wages growth from the low rates of recent years as firms compete for staff in the tight labour market.

One source of ongoing uncertainty about the economic outlook is the behaviour of household spending. The recent spending data have been positive, although household budgets are under pressure from higher prices and higher interest rates. Housing prices have also declined in some markets over recent months after the large increases of recent years. The household saving rate remains higher than it was before the pandemic and many households have built up large financial buffers and are benefiting from stronger income growth. The Board will be paying close attention to these various influences on household spending as it assesses the appropriate setting of monetary policy.

The Board will also be paying close attention to the global outlook, which remains clouded by the war in Ukraine and its effect on the prices for energy and agricultural commodities. Real household incomes are under pressure in many economies and financial conditions are tightening, as central banks increase interest rates. There are also ongoing uncertainties related to COVID, especially in China.

Today’s increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic. The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed. The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.

Australia’s inflationary pressures are primarily imported, including via petrol prices and materials, or due to weather-related issues.

The broadest gauge of domestic inflation – wages – remains soft, despite the tight labour market. The March quarter wage price index printed annual growth of only 2.35%, whereas last month’s Q1 national accounts recorded only 2.2% growth in average compensation per employee.

Most tellingly, Australia’s real unit labour cost (ULC), which according to the Australian Bureau of Statistics “are an indicator of the average cost of labour per unit of output produced in the economy” and “are a measure of the costs associated with the employment of labour, adjusted for labour productivity”, have collapsed 6.3% below their pre-pandemic level and have fallen for the better part of 35 years:

Real unit labour costs

Australian wage costs are actually dis-inflationary.

Therefore, the RBA is not facing a wage-price spiral and does not need to run hard against wages growth by aggressively hiking the cash rate. To the contrary, wages in Australia are disinflationary given the falling ULC.

As such, there is little justification for the RBA to hike rates so aggressively to counter imported (cost-push) inflation. Such a strategy will exacerbate cost-of-living pressure for households and hammer the economy without relieving the very forces driving the inflation problem in the first place.

Moreover, consumer confidence has never been this weak at the beginning of a rate tightening cycle, already running below the GFC trough at recessionary levels:

Australian consumer confidence

Australian consumer confidence has never been this low at the beginning of a rate hiking cycle.

The Lunatic RBA seems hell bent on driving the economy into an unnecessary recession. It would be the “recession we did not have to have”.

Unconventional Economist
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Comments

  1. happy valleyMEMBER

    “The Lunatic RBA seems hell bent on driving the economy into an unnecessary recession. It would be the “recession we did not have to have”.”

    Wouldn’t expect anything better from Captain Phil – the greatest house price boom and bust will be his sole legacies when he exits the RBA in September 2023. What a champion?

    • Grand Funk RailroadMEMBER

      I think for sure the RBA is driving the economy into recession with Monetary policy. I also tend to the view they will be joined with Financial Policy and a new government trying to become increasingly parsimonious.

      At the same time I dont see the RBA as doing much other than decorating the backdrop with their hikes, the same way they’ve been essentially a Monetary policy waste of time for at least a decade. The ‘inflation’ they have is virtually all supply shock or logistics chains, or geopolitical consequences of the here and now playing in front of utterly rooted economic policy for the better part of 25 years. The decisions to eliminate manufacturing and to go long services, the population ponzi, the real estate speculation economy, the tax cuts for the 1%ers and wealthy, the emasculation of the public services, the victimisation of the unemployed, and the deforming of superannuation to become a tax avoidance scheme mandated by the government to hold PAYE taxpayers to ransom for the tax avoidance and speculative ‘wealth creation’ end of the community, the trashing of a once respected University sector to become a ticket clipper for the aspirational migrant class, all ululated into existence by a Media which has about as much relevance to those living contemporary life as ‘New Idea’ or the ‘Truth’ once did.

      It has taken a long time for this recession to come to us – albeit with a a Covid taster – but the road here has been littered with utter policy failure overseen by the Liberal National and Australian Labor Party governments of the era.

      • The Traveling Wilbur

        You can add “conoodling with a triumphant of resource extractors to trigger a pricing-farce of such energetic proportions even The Dutch East India Co. would have looked on in awe” to that list too.

      • Jumping jack flash

        Agree.

        And that curious multi-trillion dollar stimulus far and above any actual effects COVID had on those economies that implemented it, the resulting “transitory” inflation from it, the minimum wage hikes – all implemented by most developed economies, coinciding with hitting the zero interest rate bound, all around the same time….

        things that make you go hmmm… well they make me hmm, anyway.

    • elasticMEMBER

      Australia has felt much like an asylum the last couple of decades so we’ve probably got the right people calling the shots

  2. Damned if you do, damned if you don’t.

    They fail to raise and import inflation kills everyone. Petrol being the biggest.

    They raise, and a recession kills 2-5% of the workforce and the housing market.

      • They have no choice, higher rates mean a higher AUD, lower input (e.g. oil) prices at the pump.

        The down side is that house prices (in a closed economy) as a function of affordability. Higher interest rates, lower house prices. Given MB have always complained about elevated homes, I thought they would be welcoming current events? Given they have been predicting a price crash since this website started!

        • Yes but wouldn’t it be better (for the economy) to have a lower AUD, due to lower rates, and Labor pull the trigger or implement a windfall tax (as some other countries already have) to lower most energy prices.

          • Camden HavenMEMBER

            RBA is on the verge of loosing what little controls it has to slow the decent of the Aussie poo. See the vol of hot money over the weekend, bonds will price in exchange rate risk and spreads will blow out.

            The answer is, that there is no answer, just consequences

        • ScientistMEMBER

          May be the MB sensationalist headlines on ‘crashing’ house prices and recession is because they don’t like the effect of rate hikes on the stock market which in turn impact the MB Nucleus Wealth business…

      • Your kidding right, the interest rate hikes were baked into the cake before the election, Inflation was an issue before Russia invaded Ukraine and is a product of the monetary and fiscal largess of the RBA and the Morrison government, who combined, printed up in excess of 380 BILLION dollars out of thin air and handed it out, mainly to businesses. As Milton Friedman stated almost a hundred years ago “Inflation is always and everywhere a monetary phenomonen”. This is on the liberals heads this time.

        As for MB incesent whining about the lunatic RBA, the RBA have no alternative but to try to crush inflation in the shortest timeframe possible before wage rises start feeding into inflation causing the endless feeback loop experienced in the 70s and 80 thereby devaluing the saving of the people who have done the right thing their whole lives to zero

    • I'll have anotherMEMBER

      They *raise anyway* and import inflation *still* kills everyone.

      Fixed it for you.

      If you accept the premise the inflation is imported then it follows raising rates here will just be a 1, 2 punch combo.

    • The RBA made exactly the same mistake in 1975, 1989 and 2020. In each case, they lowered rates more than they should have, and consequently had to raise them afterwards by more than they should have. I can’t speak for 1989, but, any competent board should have been able to avoid this mistake in 2020-21.

  3. “As such, there is little justification for the RBA to hike rates so aggressively to counter imported (cost-push) inflation.”
    I would have thought the justification is to support the AUD so the imported inflation doesn’t get worse??? If they don’t hike, and every other developed country does, AUD will crater and imported inflation will go through the roof. The interest rate settings are not solely based on domestic factors.

    • I'll have anotherMEMBER

      The RBA shouldn’t be setting rates based upon Forex pricing. If that’s the justification that’s silly.

      • Rates are a key driver of forex pricing. If rates in AUS are much much lower than USA, there will be a capital flight to USA, which will drive down AUD.
        Obviously there are also other factors in forex pricing, but rates and forex are not mutually exclusive.

        • The yahoo finance guy who normally provides the day to day commentary on the AUDUSD has stated (as has DLS, I believe) that commodity prices are the bigger part of the AUD driver, than the IR differential.

        • Its only one of their 3 mandates, the other 2 are about people (employment and wealth/prosperity).

    • Goldstandard1MEMBER

      Spot on mate. He completely misses this. He also misses that rates at emergency levels and having people borrow for bubble assets into inflation is lunatic material.

    • Inflation will be imported regardless. Food, fuel and energy are not really discretionary items. Jacking up interest rates wont stop people consuming these things.

      • Eventually they will.

        I’m expecting a rapid decline in obesity because large peeps cant afford as much KFC.

    • True but it’ll also have some positive effects as it’ll make our exports more competitive

  4. Rates are still exceptionally low, seriously if you can’t handle these still exceptionally low rates, you massively overleveraged yourself. Only the idiots burn here and so they should.

    • David! Nobody can ever feel the pain of a bad decision! How un-Australian of you.

    • That’s not how it works. It’s the percentage of increase vs the previous level, not the ‘overall percentage”: i.e. from 1% to 2% it’s a doubling of the interest amount, even though it may still seem low at 2%

      Just for the record, I do agree with your conclusion, though!

      • Camden HavenMEMBER

        And for how long the rates apply brakes on the economy. So time is an important factor in the equation

      • DingwallMEMBER

        Lol they were still only paying f’all interest so double f”all is still f’all… the problem is the house prices are at stupid levels so loan sizes are ludicrous

    • Disagree.

      Average family who was paying as much in rent as they could be on a mortgage. They both had stable incomes and a few kids to support. They weren’t speculating, they were trying to invest for their families future and the home is forced savings. The fact that prices went to eye watering levels is not their fault, they simply played the hand they were dealt. When most people buy homes, they are not looking for a quick flip or capital gains deductions. For most, its a place to raise a family and a build a little bit of wealth before they die.

      These people do not deserve to be torched and its incumbent on regulators (APRA), govt and our RBA to make sure they don’t.

      • pfh007.comMEMBER

        They always had a choice whether to continue to rent or borrow a bucket load on a variable rate deal.

        I agree they should never have been allowed to make that decision as it was inherently reckless and we don’t allow people to drink and drive even they believe they can “handle it”.

        Unfortunately the debt peddling industry fights long and hard for people to have the freedom to blow themselves up with debt so no effective paternalistic regulation is in place to protect them from themselves.

        Holding the RBA hostage to bad decisions of some is a terrible idea.

        Those who made bad decisions can sell their assets now and repay their debts and learn a valuable lesson from the experience.

        • “They always had a choice whether to continue to rent or borrow a bucket load on a variable rate deal.”

          If the choice was pay the same dollars on a house you may someday own or pay rent, some made the decision to buy. No one wanted to pay a bucket load, its simply what the market had been serving them for the last 20yrs.

          • Yes, given the very skewed incentives to own property in Australia it’s really not a choice, especially given the long history of rising prices due to government vote buying & recent low rates. And as stated before, if you don’t max out your loan at every opportunity at recent low rates you will be slipping behind those who earn the same as you who do max out their loan given the history of steep price rises & other advantages. Wouldn’t you?

          • charles bukowskiMEMBER

            its a choice, and i’m still renting. Its been a potentially poor decision for 15 yrs, however, i own that decision knowing risks involved.

        • The Traveling Wilbur

          Wrong.

          We do allow people to drink and drive.
          We do allow people to commit multiple murders.
          We do allow people to borrow more than could possibly be considered sane.
          And we do allow the RBA and the vested interests running the cartels that JPK unleashed on this country to get away with…. everything.

          We don’t permit these things.
          But we allow them to happen.
          And, alll of them, could be stopped. Within 12-months.
          If we cared sufficiently to do so.

          • What?

            People can drink drive and commit murders but they are operating outside the law in doing so. Borrowing money from an ADI with a banking licence, a credit licence and which is regulated by APRA who governs how/where/when money is lent is legal. These same regulators write very clear rules around client suitability, risk assessment and collateral obligations that banks are stress tested on.

            The legality of lending an insane (your emphasis) of money is absolutely clear. The legality of murdering and drink driving is also absolutely clear. If your argument is that banking regulation needs to be changed to prevent insane amounts of money being lent, we agree. If your argument is that an individual operating fully within the law and debt borrowing guidelines is as accountable as a drink driver who is breaching the law, then we disagree.

            The credit regs have been designed to prevent system collapse and consumer harm – consumers feel the pain when interest rates go up and will pay accordingly or default. However, it is functional madness to say that a normal person, operating within the credit regs should have the foresight to predict the risk of 1 in a 100 interest rate/recession/black swan event which could place them well over the credit stress test limits, and because of this lack of foresight, they should be torched.

          • The Traveling Wilbur

            Neither. It’s about what’s illegal, yet tolerated to varying degrees. E.g. murder, burglary, domestic violence, drink driving, treason (spying usually), cavorting with property developers, violating money laundering legislation (hundres of thousands of times), handing casinos over to organised crime… and I really could keep going…

            Guess which of those examples gets the most resources thrown at it, per instance. And guess which set of resources for ‘prevention’ of each of those things costs most to run. And everything else is ‘permitted’, more, to varying degrees.

            But you raise an interesting point that I hadn’t considered. Some of the ‘sanity’ part of the ‘vibe’ (fairness in other words) surprisingly IS reflected in legislation: for example usury (50% max interest rate pa) and profiteering (during war disasters etc.). So it can be done. But only just, and it hardly hardly hardly ever gets enforced when it is. E.g. charging dead people for financial advice.

            These things could ALL be significantly reduced in terms of current incident rates. Well, all, but the one real resources really are already thrown at of course.

      • They were cheering on house price growth of 40%!
        Didn’t hear them complain then.

        • Rubbish, there were articles everyday commenting how crazy prices were and how nervous people were buying in.

          • What?

            That in itself is rubbish.

            I didn’t read anything but cheerleading in the MSM about the housing bubble while it was being blown.

      • How would they get torched if they have done their budget based on higher rates etc.?
        The fact that the first rate rise caused so many people to throw up their arms says to me that these people over-extended themselves from the get go.
        If you can’t afford a house then don’t buy house. Just rent.
        I ran the numbers and can’t afford a house. I rent.

          • Arthur Schopenhauer

            Claw, did you post the report on Aussie debt?

            It seems the average household’s personal debt, excluding credit cards was $56k. I guess that’s one new car?

            Millennials had an average of $17k credit card debt. FFS!

            Not sure which is the worst use of debt in the economy?

            House of Credit Cards 🃏.

          • Have you seen those torsos without arms and legs swim. Man that’s proper perseverance right there.

      • Also, if they just wanted a family home why didn’t Labor win when they wanted to get rid of NG?

        • Because most punters dont know the ins and outs of NG or its impact to their ability to buy a house. Does not prevent these same people for being highly capable in other parts of their lives.

          Don’t agree with the notion that because most are not economists or bankers they are somehow stupid and deserve to be torched.

          • Ok , they had/have no idea what NG is and what removing it would do to house prices.
            I know cleaners and high school kids that know what it is.

        • Because Shorten started well with removing NG policy and then moved on to more and worse policies finishing with parental visas for everyone by which time he lost my vote and many others.

      • So, wait for wages to catch up ?
        Long wait.
        Will be quicker if market is allowed to market, sadly.
        Voters calling for productive, value added industry would help the change quicker than voting for housing add ons

        • Jumping jack flash

          “So, wait for wages to catch up ?”

          Nope. Wages are set by prices. How else do businesses pay their employees except through a percentage of revenue?
          If the idea is to stop price inflation then that will also stop wage inflation.

          “Voters calling for productive, value added industry would help the change quicker than voting for housing add ons”

          This has to be led by the government…. private sector will soon be toast.

          So, which one of our glorious elected leaders is going to take the bull by the horns and break ground on our new national factories, do you think?

          • Yesterday we had Stephen Bartholomeusz reminding us that governments can’t pick winners, as in the market needs to find its winners.
            https://www.smh.com.au/business/the-economy/risky-strategy-for-picking-winners-and-losers-in-the-green-economy-20220704-p5ayua.html
            unfortunately the process by which the market finds winners requires a sufficient depth of capability that an individual can raise to the top and lead the group. With all the gutting that Aussie manufacturing has suffered there are very few Aussie manufactures that still maintain a foot hold in global markets. Most makers of anything in Australia simply cater for the demand of uniquely Australia products.
            So our experts are only experts in our local needs (worlds largest housing economy) but they’re complete novices when it comes to creating products with true global reach.
            It’s not just fringe economic groups that recognize this, intuitions like the IMF and MIT/ Harvard’s Complexity analysis groups have long ago concluded that Australia’s only hope of rebuilding manufacturing is through a process of the government picking winners.

          • working class hamMEMBER

            Australia has a world leading 4×4 modification industry. Not something that can be easily exported.

      • I remember these people telling me in 2020/2021 that I’ll never get another opportunity to buy a house unless I buy now, while they FOMO’d in at the top. So glad I didn’t. I’m renting at the moment and hope to buy in the next 2-3 years.

        • It takes a lot of will power to resist the peer pressure from every punter who thinks it’s a 1 way bet. I resisted for many years but caved in after being wrong too many times. I was horrified when prices boomed off Covid stimulus.

          • Jumping jack flash

            Same.
            Prices almost doubled in my area as soon as i bought.
            Crazy. Doesn’t help me much but i was able to renegotiate my interest rate down at the start of the year because of it… fortunately.

            All caught back up now though!

      • Sorry they had a choice.
        We chide the other way. People just affect used to hearing “you can’t afford this or that”. It isn’t easy renting for lady 10 years but it now won’t be easy with a mortgage.
        You always had a choice. It is not like you would have been homeless.

      • Dude, if, asa grown adult you couldn’t work out that borrowing a million bucks was risky, “a fool and his money…”

        • Dude. As a full grown adult risky is never having the prospect of owning the most important asset you will ever buy.

          • And how many of these debt slaves actually own it? At these debt levels, you are just renting it from the bank. And higher rates, you have no other choice of landlord other than your existing bank. At negative equity, you are facing being thrown out of the dwelling by your landlord the bank.
            Own the place? Miss a payment and we will see who actually owns it.
            At what point did you actually own it? Only in the instance where the rates are lowering and asset price is increasing. That is the only point in time where these debt slaves had any resemblance of ownership. That’s what noone talks about, the hand we have all been dealt with is to own nothing and be happy. Debt slaves have swallowed this, and now they have the “own nothing” part coming back.

          • According the the credit regs, consumers should be prepared to pay the bill up to the stress test limits. If they cannot, then the default is on them assuming no extraordinary circumstances. If interest rates/black swan/recession goes above what the regs/limits were designed around, I dont agree they are responsible. If the regs/banks didn’t account for it, why should the average consumer?

  5. pfh007.comMEMBER

    “..the Reserve Bank of Australia (RBA) has just dealt a big blow to mortgage holders,..”

    No that was dealt by the debt peddlers and all those asset price fluffers who shamelessly used the “bait rates” to get a bunch of slow thinking punters on the hook.

    The RBA is forced to increase rates because it has ONE job and that is controlling inflation and the best way of doing that is to crunch the credit created by debt peddlers.

    If a reduction in credit creation by the bankers slows economic activity too much there is a bunch of easy solutions.

    1. Reduce taxes

    2. Increase government expenditure on all those things that need doing.

    3. Regulate credit creation so that the bankers are less able to spray credit at the prices of existing property. That way if the RBA does feel the need to stop raising rates or even to reduce them the resulting credit creation will be for productive investment rather than consumption and asset price fluffing.

    But the very last reason for the RBA to stop raising rates is to allow the ponzi merchants to sell yet another cohort on their get rich schemes.

    • “The RBA is forced to increase rates because it has ONE job and that is controlling inflation and the best way of doing that is to crunch the credit created by debt peddlers”

      The RBA has 3 mandates, only 1 relates to the currency (inflation linked), the other 2 relate to people (employment and wealth/prosperity).

      When it comes to the crunch, the RBA will have to side with people even if it means the currency gets trashed.

      • pfh007.comMEMBER

        There is no way the RBA is going to ignore inflation because of the employment or “prosperity/wealth” objectives in the charter.

        We know this because the RBA has never cut interest rates to get the unemployment rate below NAIRU even when NAIRU means that 1 in 20 people were unemployed. Fighting inflation was so important that significant unemployment was tolerated for extended periods.

        As for the general prosperity / wealth objective the RBA will have no difficulty arguing that means nothing if inflation is not controlled.

        An independent central bank has ONE objective above all others and that is fighting inflation and doing what politicians cannot be trusted to do. …..take away the punch bowl.

        The RBA failure in this instances was not arguing against the monetary policy maniacs in the first place and simply making it clear that monetary policy has its limits and they were reached long ago.

        But then most senior staff at the RBA are fully paid up members of the monetary policy maniacs club as “independent central banking” is a core belief of that club.

        By the way I am no fan of what the RBA is required to do but it has no alternative given the existing model.

        Of course there are plenty of options if we are prepared to start talking about fundamental reform of a broken monetary model but there seems ZERO appetite for that.

      • So basically rba will think of 30% who have a mortgage or the 100% who are affected by inflation?
        Even if I believe rba will care, there’s no precedence for a central bank letting inflation run and have it be defensible Acton. There are plenty of bubble bursting actions from central banks that are fully accepted as the right course of action.

        • Over 60% of households have an average of 250k in debt. If they go too hard they will destroy consumption, they will destroy jobs. If they destroy jobs they destroy prosperity.

          Inflation will end up below range, employment will be below range and people will be on the streets. All 3 mandates completely destroyed and a country in tatters.

          Let me be clear, housing needs a clean out but this is better done with APRA and GOV policy than the blunt tool of interest rates trying to tame imported inflation numbers.

          • Wrong as usual: the $250k is the MEDIAN, which is something completely different from the AVERAGE.
            It’s almost certain that the average is substantially higher, due to well off outliers with lots of debt.
            On the flip side, it also means that the half of those 60% have debt in the $1 to $250k range.

          • Sure, but neither of those entities did their job so rba can’t be held back to doing theirs. How exactly is rbas actions incorrect when they are actually in sync with all other CBs?
            Rba is independent of the govt but it isn’t independent of other central banks. The currency already in 60s, any thought to what would happen if they had not even raised what they did now? AUD would tank, petrol would be 3 or 4 bucks and manufacturing industry would be dead. But that’s ok because people can’t handle a 250k loan.
            Why is it every time the rest of us have to pay for a few highly indebted people who didn’t have the sense to just rent?

      • >> When it comes to the crunch, the RBA will have to side with people even if it means the currency gets trashed

        When it comes to the crunch, they will have to side with what keeps them out of jail. Increasing rates in the face of inflation is what can be read out from a witness box that will seem credible. Everything else can be blamed on them as “not following their mandate”.
        Simple fact is democracy is not stable at high inflation. They will have to act, even if the blunt tool bulldozes through every little debt pleb. If they can’t break it, that’s a different issue, to stay out of jail, they need to look to have tried.

      • The Grey RiderMEMBER

        I’m waiting for the first emergency rate increase…then I’ll know the RBA is serious about beating inflation.

  6. DingwallMEMBER

    Imported inflation lol …. Hell we even export stuff so we can import it back…. Is that similar to self- flagellation?.

    • no, don’t come over here.
      the root cause of the interest rates dilemma in australia, is 20 years of mass immigration.
      your urging the easterners to come west is the same recipe, it will only exacerbate quality of life in the west.

      • I agree. Totally but have become incredibly frustrated that no matter how well WA governs itself (no pokies, no sale of ports/powerlines/stadiums/infrastructure, no toll roads) we end up picking up the tab for the east coast clowns. The best thing they, including DLS and LVO, can do is come spend some time here. Live here for a bit and see how different it actually is.

        • Cmon Bill, over playing WA’s governance and leadership hand a bit. Oligarchs have dragged WA up onto a pedestal by selling dirt to China. It wasn’t the govt, it was Gina, Twiggy, BHP and RIO. WA and Australia wasted the largest windfall resources boom in modern history. Should it dry up, WA is toast.

        • Didn’t realise WA didn’t have pokies or toll roads (OK, you probably don’t have the population to even entertain the latter). Mining or no mining, that’s already a better outcome than any east coast LibLab state govt.

        • I visited the last 2 days and enjoyed it. Houses aren’t much cheaper than Adelaide but the beaches are nicer, the roads are better, and utilities appear to be much cheaper.

  7. JspitzerMEMBER

    Domestic inflation is way way above the reported numbers but the amount of rate hikes needed to kill it is way under what they say.

    • I suspect rate hikes will have a much bigger impact than they expect (given high debt & % increase from present) but also much less effect on inflation (given it’s supply side)

  8. I really hate it that Boomers (even radical 70’s union leaders) are now preaching wage restraint.
    Like wtf, where was this moderation sentiment last year when house prices shot up by 25%
    What hypocritical low life’s, I’ve got my raise but that means the economy can’t afford yours, unbelievable

  9. Oh Totes where art thouMEMBER

    As global supply-side problems continue to ease

    Clearly the RBA isn’t seeing the oil shock that’s coming.

    • Jumping jack flash

      Energy shock, and probably food as well.
      None of which can or will be solved by raising interest rates.

      The problem is they’re using ethereal tactics – modifying the price of debt, to solve a physical problem – an energy and food shortage

      Nobody cares about the price of debt when you go to the shop and there’s no food, and certainly the price of debt can never solve this problem

      But, bankers are going to bank, that’s what they do.

      • I can see that you’ve never really grasped the concept of the “invisible hand”
        It’s not an economic concept about market supply and distribution, rather it’s the lived reality of the financial services industry which picks your pocket at every possible opportunity.

    • It varies a fair bit compared to the rush to pass on rate hikes, but before today’s rate announcement, there were a few savings accounts offering over 2% (from memory, ING and AMP are among those – even if they both have those annoying minimum deposit requirements or sometime max amounts you can earn interest on).

  10. Jumping jack flash

    Excellent.
    Each interest rate step up, is another step closer to the economic abyss.

    Just like 2007 its all happy days. The RBA is gleefully pumping the interest rate lever, until.. bam.. a bank collapses, the LVR tips a little too high, and the interbank lending seizes up…

    We will see how they handle that, and if their decisions are any different to the ones they made in 2008. I think they have the same “Central Banker’s Handbook” as they had in 2008.

    The risk profile today is no different to the risk profile that existed in 2007, except that there’s far more debt, and probably far more dodgy borrowers.

  11. WhatcouldgowrongMEMBER

    How to look after the most important members of society aka property speculators – bring in heaps of migrants, squeeze supply, pile them into investment properties – problem solved! A family might not be able to cover the increase in repayments but packing in new arrivals might.

  12. Ronin8317MEMBER

    The alternative to raising interest rate is to act like Bank of Japan : print money to buy bonds to infinity. That is one sure way to put the AUD into the 40s as the market seek to ‘punish’ Australia.

  13. Finance MessiahMEMBER

    What a timeline. We have central banks like the RBA increasing interest rates to battle inflation primarily driven by global factors, not domestic ones. Great idea. After the RBA made such good decisions during the GFC in 2008, I can only imagine that the RBA will continue making those same decisions in 2022 and into 2023. Do they seriously think inflation will ease by the end of 2022 and return to the normal range in 2023? I am almost sure there is a gas leak impairing their judgement. If only we could find a tradie to go to Martin Place and check for gas leaks.

    I love how captain Philip acknowledges that it’s imported inflation but still can’t resist the urge to take a jab at Australian consumers and blame them for inflation with their “spending habits”. Some expenses are not discretionary, like food, fuel and electricity. It’s not consumers causing inflation. Yes, there are domestic factors, but nothing compared to the effects of the war in Ukraine and supply-chain-related factors around goods and services. We can live without lettuce, not electricity.

    The irony is that the RBA will end up cutting rates in 2023 when the economy begins to crater, by then we’ll be so far into an avoidable recession that it won’t matter.

    • Camden HavenMEMBER

      When this cut comes in 2023 what price do you think that the AUD will be? If it’s under 63 then I’m not so sure

      • Finance MessiahMEMBER

        It really is hard to say. Right now, my belief in everything is quite low considering those global factors we have no control over. I suspect with interest rate rises cooling demand for some commodities, the AUD will be taking a nice little tumble in the coming months.

    • happy valleyMEMBER

      By mid 2023, the RBA will likely have given a “hospital pass” to APRA to deal with the failure of one or more Strayan banks. Any thoughts on the first casualty(ies)?

      • Finance MessiahMEMBER

        It will be interesting to see. Australia has no buffer against any financial crisis like we did in 2008. It has been decades since Australia has seen economic conditions like we are facing. Although my understanding is banks during the pandemic were overflowing with capital (feasting on low borrowing costs like an all you can eat buffet). I am going to assume that most banks will be safe in the interim. But, many of our banks were operating like the party would never end. To my knowledge, CBA was the only bank sounding the alarm on the property market spiralling out of control.

        • UpperWestsideMEMBER

          I haven’t looked at Aussie bank balance sheets for 25 years but I would be surprised if they kept the loans on the books. The majority should be passed on via CLOs and MBS (you would hope )
          Anyone with first hand knowledge able to comment?

  14. StomperMEMBER

    We’ve had double digit inflation for years – the price of the most important asset to purchase having skyrocketed – we just pretend and look away……

  15. Arthur Schopenhauer

    Quite a bit of PANIC on the Property Couch podcast.😱🤯

    “We are not in Crisis Territory here!”

    Take that denial as a confirmation.

  16. Dafork? Afternoon links are subscriber territory now? Yeesh! Inflation is really everywhere!

  17. Arthur Schopenhauer

    What would it take for a Super Fund to collapse? Is it even possible?

    • I would have thought not given the fund gets your contributions from your employer, then takes out your fees insurance costs etc, then invests the rest via your plan. I guess your account could be wiped down to zero if the investment selection went to sh!t, but i wouldn’t have thought that would be the super funds issue, except if enough people pull up stumps they may not get enough fees to operate and my guess is they would merge it with another fund.

  18. 2023HomelessMEMBER

    Why does MB have to blame the RBA so much? And let APRA off the hook? APRA actually are most to blame for the COVID housing bubble. They worked with the government to relax lending standards, to stimulate property prices, during COVID. This is not their role!

    1. Acceptance of COVID lock down spending habits as BAU in loan applications. For example, ignoring rental holidays, or that people withdrew super, lived on it, and showed ‘savings’ from their wage! Or ignoring that people had once in a lifetime low spending as they couldn’t leave their house. Or that they reduced the need for true saving history through accepting bank of mum and dad ‘gifts’ as similar to savings history. Plus opened the flood gates to mortgage brokers through quietly walking back controls applied after the royal commission. None of this should have been allowed.
    2. Didn’t increase the banks assessment buffer from 2.5 to 3% early enough. And not higher than 3% when market rate rises were already suggesting it was too low. This was a choice and driven by wanting to avoid house price falls, rather than prudent lending.
    3. Allowed Loan to income ratios to grow during this period, noting that COVID was inflating the paper values of income.
    4. Did not push back on Frydenberg when he tried to go further and remove pretty much all Haynes royal commission changes to assessing loans.

    If the housing market falls, and people get burned, which is near certain. I believe people should be outside APRA with pitchforks, not the RBA. The RBA should be where the angry mob walks to second.