RBA whips markets on Australian interest rates

Futures markets continue to forecast further aggressive interest rate rises from the Reserve Bank of Australia (RBA).

At market close yesterday, the market was still tipping the official cash rate (OCR) to climb to 3.0% by December and to 3.5% by June 2023:

Forecast official cash rate

Markets still forecasting aggressive interest rate hikes.

If true, this would see Australia’s average discount variable mortgage rate climb to 6.9% by June 2023 – exactly double its April pre-tightening level of 3.45%:

Forecast mortgage rates

Mortgage rates still tipped to double.

In yesterday’s interest rate decision, RBA governor Phil Lowe took a veiled swipe at markets, suggesting the RBA won’t hike rates as aggressively as they are projecting.

Specifically, the RBA noted that “medium-term inflation expectations remain well anchored” and that “inflation is forecast to peak later this year and then decline back towards the 2–3 per cent range next year”. This suggests the RBA is not on a crusade to hasten a drop in the rate of inflation at all costs and that aggressive rate hikes probably won’t be required down the track.

There was also an acknowledgement that “household budgets are under pressure from higher prices and higher interest rates” and that “housing prices have also declined in some markets over recent months”.  The RBA then stated that “the Board will be paying close attention to these various influences on household spending as it assesses the appropriate setting of monetary policy”.

Overall, the RBA signaled that it is not on a pre-determined path on interest rates and will pragmatically assess the data as it comes.

I am surprised that the futures market did not significantly downgrade its OCR forecasts in light of these comments. Because the way they read, the RBA will stop well short of the market’s bullish forecasts.

Unconventional Economist


  1. The Bystander

    Might be a case of the markets looking at Lowe’s comments and thinking “fool me once, shame on you…”

  2. I think they are still being punished for their b.s. last year. For what it is worth, markets right to take what rba says with a grain of salt. They cannot be trusted.

  3. RomulusMEMBER

    The market knows that Lowe is wrong again given his accuracy so far.

    A significant chunk of the inflation problem is linked to oil/gas. Without resolution on that front – which is a resolution to the Russia conflict or a severe global recession enough to compensate for current shortage + any additional volumes that come offline in Russia/elsewhere.

    We are not there yet at least for this year. If there is a short drop in inflation it will rise again in Q4.

      • RomulusMEMBER

        Thanks – it would be interesting to see the breakdown into components for that analysis. Also the methodology is pretty simplistic and can lead to overcounting the demand side. Did people book holidays in Q1/Q2 due to savings sure yep – did they pay significantly more in airfares due to airline capacity constraints & increased fuel costs – absolutely. Yet this would probably land in the demand column.

        The author admits that himself:
        Before we get to the graphs we should start with a health warning: This exercise is very much a rough rule of thumb. Obviously a given good or service could be subject to both supply and demand shocks at the same time and the overall effect on prices and quantities will be determined by not only the level of supply and demand but their respective elasticities.

        I agree post COVID spending has been a factor but I still think that a significant factor is supply/imported inflation.

      • Jumping jack flash

        A couple of trillion stimulus dollars plonked into the global economy in the name of COVID will do that.

        And all our glorious financial overlords here and across the seas sat by and allowed it to happen without saying much at all.
        In fact I’m pretty sure they called the resulting inflation “transitory”, at the time.

        And most recently they raised or are in the process of raising, minimum wages all over the place.

        To me, it looks as if they wanted inflation. And not just any inflation, they wanted an enormous pile of inflation!

        But now… they suddenly don’t.

        The problem is simultaneously supply and demand. We are currently working through all the stimulus, so that’s demand-driven inflation, and in a few more months (if not already, depending on where you live in the world) the problem will be supply-driven inflation.

    • One trick ponyMEMBER

      oil/gas could possibly retreat from here, but ultimately just needs to plateau to stop contributing to higher inflation (as opposed to going up significantly again each year)

  4. I’m a little confused by the article’s on here lately. For years MB has been ripping into every agency for inflating a housing bubble with unsound economic policy. Now as the RBA appears to be heading back to a sensible level, bloody murder is being screamed from the roof tops. Job vacancy is at levels unseen in a tightening environment and no economists really have a good grasp of what this means. If jobs hold up, damn just let it ride. If they pull the pin at this level Australia’s piss poor investors will just pile back into housing instead of productive investments.

    Australian has to feel some pain for all the years of poor choices we have made, otherwise we are just doomed to repeat them and we will end up with ever inflating housing issues.
    Additionally, if they do take some heat out of the job market maybe the government can reconsider this poor thought to import more overseas “skills”.

    • Fishing72MEMBER

      Yep. I know a bloke who owns 15 houses who is shopping around this weekend for his 16th. No one believes housing is going anywhere but up. It’s an entrenched mindset that needs to have the Earth salted around it or else it’ll just grow back harder than ever before.

    • You’re in a good company,
      Anyway, hint: the MB are not the crashniks you were led to believe.

    • “When the last bear turns bullish, is it time to get out?”
      And the authors of articles here know that as well as anyone.
      So perhaps they are just giving the property market what is needs?

    • Glad I am not the only one confused by their stance.
      The reality is that the RBA are the only ones who could stop the rise of house prices – APRA is piss weak, the politicians are too invested or been bought off.
      Rising inflation has meant that the RBA has to act and a side effect is the killing of house prices.
      Will people/the economy get hurt? Sure. But so what. There has been an entire generation of people hurt by rising house prices, not to mention the hollowing out of our economy because it’s based on ‘houses and holes’. All this will do is transfer the hurt and give some relief to those effected previously. Bring it on.

    • C.M.BurnsMEMBER

      DLS and Leith have found themselves on the wrong side of the single biggest call in markets for the last couple of years, whether inflaiton (globally as well as locally) is transitory or secular. When you’re running a blog, that a minor annoyance and easy to back-track. When you are 2/3s of the macro advisors for an investment fund managers X millions in super and investments, that is a huge issue.

      in this scenario, one can either reverse all those trades and admit you were wrong. Or double down with ever increasingly click-baity articles trying to create your own reality.

      MB seems to have chosen the latter path

      • TailorTrashMEMBER

        When journalists become fund managers their views may need to change …….

    • Jumping jack flash

      The struggle of guessing what actually happens from what you want to happen, or what should happen.

      What actually happens: “And now for something completely different!”

      And also, be careful what you wish for.

    • Macro can defend themselves but my take is that they have argued for years that housing was out of control, most would agree. Unfortunately, when that happens you create a rod for the economy’s back and with debt being the way it is, small interest rate changes make a large impact to the economic strength of a demand driven economy. This is there argument now along with inflation being external pressures which RBA cannot affect. Time will tell which side of the scoreboard they sit on.

      Houses are 70% of the nations wealth and if that gets torched, the ‘economy’ goes with it. Only those with very large reserves of dry powder will remain unaffected. This whole, “I want houses to crash so saver and my kids can buy a house” doesn’t marry with reality. If it goes down as much as some hope then there will be no lending, kids won’t have jobs and even if they did they wont have the kind of jobs needed to secure risk assessed credit to buy them. Everything will be harder for everyone and if it gets that far hopefully good can come of it.

      My 2c is that asset and cash rich will simply make out like bandits during a collapse. I agree with JJF – be careful what you wish for as the conclusion may not be what you hoped.

  5. Quantitative FleecingMEMBER

    The boy who cried “wolf”.
    – RBA announce YCC, abandon it later
    – RBA announce inflation transitory in line with Fed, later backtrack
    – RBA announce no rate rises until 2024, abandon that months later
    – RBA announce 0.25% hikes only, 0.5 is off the cards, promptly abandon it

    They keep making dovish announcements only to backtrack when the reality hits them square in the eyes. Why would this time be any different?

  6. Not all doom and gloom. Barfoot and Thomson ( Barfoots) which accounts for approximately 40 percent of Auckland real estate sales released its monthly data yesterday. Odd that Hugh did not list it given its timeliness. ” The median price paid for Auckland residential houses defied expectations in June and rather than falling, increased by 2 percent on that for May.”
    Importantly however“Sales of properties for the month were the lowest they have been in a June since 2010.” with vendors withdrawing and undoubtedly agents on knees howling in protest.
    Sales have been low in New Zealand for a number of years, 2021 sales were very low, , when adjusted, were the lowest in thirty years with the exception of the years immediately following the GFC, at odds with the media frenzy of a mad real estate frenzy.
    2022 certainly could see the lowest volume of sales adjusted ( or not )since records began, with bank mortgage credit growth turning sharply negative . New Zealand has a structural shortage of housing. .

      • “It was not caused by any significant shift in the numbers of homes being sold in various price brackets, with the sales numbers in the $2 million and $3 million price segments remaining constant with the lower priced categories.”

        • Well yes, they just defined a median. Whether that reflects reality or not is another matter.

          • It is my understanding that Barfoots uses the median formula is {(n + 1) ÷ 2}th, where “n” is the number of items in the set and “th” just means the (n)th number.or the state of things as they actually exist.

  7. Jumping jack flash

    The RBA has little control over anything they do, so it doesn’t matter too much what they say.
    They are just a cork in the ocean of the global economy. Markets would know this.

    If the US, UK or EU put their cash rates up, you can be sure that AU will follow, and probably by a similar amount.
    I am actually surprised we didn’t get 0.75 yesterday. Probably we will soon. The unyielding macroeconomic pressures will mount.
    And probably a full 1% rise before the end of the year as the NH winter draws closer, and with it all the inflation goodness for energy, and very likely food.