Australian interest rates are set by the Reserve Bank of Australia, an independent body established in 1959. It is guided by an inflation targeting regime that seeks price stability in the 2-3% consumer price index band. The RBA originally also governed prudential policy but following several large scandals and bankruptcies in the late 1990s that role was separated into a discrete entity titled the Australian Prudential Regulation Authority.
The RBA is widely well-regarded despite a recent history of buried corruption allegations and a board of business rent seekers that, in more ethical nations, would not have their hands anywhere near monetary policy levers.
In 1990, Australian interest rates were set at 17.5%. But during the Great Moderation, interest rates consistently fell alongside inflation and oscillated in a band between 1.5% and 7.5%.
Owing to an endowment of resources that proved very attractive to China during the Global Financial Crisis, Australian interest rates did not fall to the lows experienced in other developed markets. Indeed, Australia was the first developed market to raise interest after the crisis though it has subsequently had to lower them again as the commodity boom subsided.
During the 2000s, Australian interest rates began to be influenced by external economic pressures much more than previously. This process was driven by the huge offshore borrowing of Australia’s big four banks in wholesale markets. As their offshore liabilities ballooned, the banks were increasingly exposed to the vicissitudes of far flung markets and investors. This reached a head in the global financial crisis of 2008 when banks faced much higher demands from offshore investors for better risk-adjusted returns, forcing them to break with the Australian cash rate in setting local interest rates.
Ever since, Australian bank have regularly adjusted lending and deposit interest rates unilaterally and independently around the cash rate set by the RBA. These interest rates moves were a constant source of political friction as politicians sought to protect the Australian property bubble.
In 2015, Australian interest rate policy was forced to return to a defacto shared responsibility arrangement between the RBA and APRA. With the lowest interest rates in fifty years, the Australian property bubble inflated to new dimensions even as a global yield trade drove up the value of the Australian dollar, threatening economic growth. Eventually the solution found was to apply macroprudential policy to some mortgage lending so that interest rates could be lowered to take pressure off the currency.
MacroBusiness was the most accurate forecaster on Australia interest rates in the market from 2011 forward. It predicted both the turn in rates downwards in 2011 and has had the most dovish outlook ever since. It also lead the debate around, and implementation of, macroprudential tools in 2014. MacroBusiness covers all apposite data and wider analysis of these issues daily.
The Reserve Bank of Australia (RBA) has to be the worst forecaster of wages and incomes in Australia. After being far too bullish on wages over the past decade: It got egg on its face yet again when yesterday’s wage price index for the June quarter came in soft. The RBA’s August Statement of Monetary
The Australian Bureau of Statistics (ABS) has released labour market data for July, which showed that Australia lost 40,900 jobs (-0.3%) over the month, with hours worked also falling by 16 million (-0.8%): However, because the labour force participation rate fell by 0.3% to 66.4%, the nation’s unemployment rate actually fell by 0.1% to 3.4%
ANZ Bank has released a revised outlook for the residential property market, forecasting that house prices in the nation’s capital cities will fall by 8% by the end of 2022 and by 18% between now and the end of 2023. Felicity Emmett from the ANZ Bank says the prospect of further interest rates hikes in
Australian wage growth missed economists’ expectations in the June quarter of 2022, according to new data released today by the Australian Bureau of Statistics (ABS). Total wages grew by only 0.72% in the June quarter, missing analyst’s expectations of 0.8% growth. Private sector wages grew by 0.72% over the quarter, whereas public sector wages grew
By Gareth Aird, head of Australian economics at CBA: Key Points: The RBA August Board Minutes are the last piece of communication from the RBA until the all-important September Board meeting, where the RBA will once again raise the cash rate (the size of the impending rate hike is up for debate). The Minutes imply
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. Inflation for the year was 3.5 per
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%. This was the highest
Australians that leveraged up to purchase property at the peak of the market risk being trapped in ‘mortgage prison’, according to mortgage experts. They warn that the combination of rising mortgage rates and falling house prices (negative equity) will impede their ability to refinance because they will no longer meet borrower stress tests, potentially trapping
By Gareth Aird, head of Australian economics at CBA: Key Points: Next week the ABS will publish the Q2 22 Wage Price Index (WPI – 17/8), and the July labour force survey (18/8). The semi-annual Average Weekly Earnings (AWEs) data will also be realised, though this tends to get less focus from market participants than
Comparison site Finder estimates that the average mortgage interest rate would rise to 5.85% if the official cash rate (OCR) reaches 2.5%. Finder’s Richard Whitten says recent home buyers, in particular, will struggle to make mortgage repayments if the cash rate continues to rise. A survey by Finder has found that one in five people
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. A key driver behind the growth was the jump in new dwelling prices,
Roy Morgan has released it July inflation expectations survey, with inflation expectations hitting their highest level since August 2012. Inflation Expectations in July are a large 1.8% points higher than a year ago in July 2021, and 2.5% points above the near record low of 3.4% in July 2020. Inflation expectations have risen across the
Until recently, oil was busy wrecking the business cycle. But, in the last few weeks, it has come off fast and is in the process of lifting economic activity. Where do we go from here? My own view is that it will hang on the Fed. Oil is not in sufficient deficit to drive the
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. As
ANZ-Roy Morgan’s weekly consumer confidence index has crashed by 4.5% to its lowest level since April 2020. This follows the Reserve Bank of Australia’s (RBA) third consecutive 0.5% rate hike last Tuesday: Key points from the release are as follows: Consumer confidence sank 4.5% last week, more than offsetting the gains over the previous three
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. Instead, Aird tips that the OCR will peak at 2.6% – a level that he considers
Here it is from the horse’s mouth. The RBA is now forecasting 6.25% inflation to June 2023 and more than half of it is the energy cartels! Moreover, the real income losses continue into 2023 as the price rises keep coming. Check out the shocking forecast for real wages: In other words, if Albo’s cowards
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). Importantly, both Sydney and Melbourne reported preliminary clearance rates above 60% – both
CoreLogic’s daily dwelling values index, which measures price changes across Australia’s five major capital cities, fell another 0.22% in the week ended 5 August – the 13th consecutive weekly decline: Once again, the fall in dwelling values was driven by Sydney (-0.29%), Melbourne (-0.34%) and Brisbane (-0.14%), whereas Adelaide (+0.12%) and Perth (+0.07%) recorded rises:
My own view is that this is wrong. I do not think that the Fed is done. It needs to short-circuit the stock market reflation for starters. Wage inflation is still strong and labour hoarding likely. But there is a deflation tsunami approaching from China, commods and the reverse bullwhip effect as inventories reverse. Whether
The market is caught between two poles. At one end are declining yields and lengthening duration which favours growth stocks. At the other end is a recession that has barely started and has not yet hit the earnings outlook hard enough. In the middle is the Fed. Charlie McElligott at Nomura: The Fed “got the memo”
The RBA has already overcooked the tightening cycle. First of all, the inflation we’ve had so far is mostly in goods and much of that is imported: The supply chain and commodity price inputs that drive up these prices are already deflating internationally. Falling prices will arrive in due course: Those goods that are made
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. This decline in mortgage commitments captured the first two RBA rate hikes – i.e. 0.25% in May and 0.50% in June – but obviously has not captured
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. It then used this liaison “evidence” to justify aggressive interest rate hikes. The RBA’s reliance on liaison represented a sharp U-turn, given it previously said that it would
The ABC published an article neatly explaining why rising interest rates necessarily means that house prices will fall. To cut a long story short, a higher interest rate lifts monthly mortgage repayments, which in turn limits the amount that a prospective home buyer can borrow. The ABC cites the real world experience of the Chamberlain
