Reserve bank interest rates

2022 - 4 - 6

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Image courtesy of "The Australian Financial Review"

Interest rates: Reserve Bank boss Philip Lowe dials back the ... (The Australian Financial Review)

It's no Powell pivot, but RBA boss Phil Lowe has subtly changed the central bank's message on rate rises.

Karen Maleywrites on banking and finance, specialising in financial services, private equity and investment banking. And that gives Lowe some latitude to change his message. His most famous pivot was the one he performed in early 2019. Especially given that the consumer prices are likely to have increased sharply in the first three months of the year, as global commodity prices have soared, and local material costs have pushed higher. In other words, provided that wage pressures are building and he’s confident that this trend will continue, he’s going to accept that the conditions have been met for raising interest rates. The Fed had incurred the wrath of the then US president, Donald Trump, by raising interest rates four times in 2018, and signalling a volley of additional rate rises in 2019 to curb inflation.

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Image courtesy of "NEWS.com.au"

Move that could crash Aussie housing market (NEWS.com.au)

Australia is in a precarious position as inflation expectations soar and forecasts predict a very worrying sign for mortgages. It's not all bad news though.

It is also worth pointing out that interest rates are a demand management tool. And there is little reason why the RBA would lift rates as aggressively, thereby engineering an unnecessary house price crash or recession. Such a rapid increase in mortgage repayments would crash the housing market and economy, which is exactly why the RBA is unlikely to raise rates as swiftly nor as far as the market is predicting. Given Australia’s current inflationary pressures are mostly imported, including via petrol prices, there is little sense in the RBA hiking rates aggressively to counter imported (cost-push) inflation. Even a 1 per cent lift in mortgage rates would see median monthly mortgage repayments rise by 13 per cent or $343, with Sydney buyers facing a larger $518 per month increase in median mortgage repayments. If the discount variable mortgage rate was to rise by 2.9 per cent to 6.5 per cent, as predicted by the futures market, then mortgage repayments would lift by 39 per cent from their current level.

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