The Reserve Bank dashed any hopes the advent of spring might mark the end of what has truly been a winter of discontent when it lifted its cash rate target by 50 basis points to 2.35 per cent on Tuesday.
While the latest increase was not unexpected it added insult to injury in that in August last year the Reserve Bank governor Dr Philip Lowe was assuring Australians the RBA had no plans to increase rates until 2024 despite the fact warning signs the economy was starting to heat up were already there.
The reality is that thousands of Australians acted on Dr Lowe's assurances by taking out massive home loans at the top of a booming property cycle in the expectation they would not have to worry about increases in the immediate future.
Those borrowers are now staring down the barrel of a probable 3 per cent increase in their mortgage interest rates by the end of the year.
With the impact of the earlier increases already starting to bite, that is a terrifying prospect for many. And, of course, these borrowers are very unlikely to have the cash reserves Dr Lowe has repeatedly said households have built up over the course of the pandemic.
None of this is happening in isolation. It comes at a time when inflation has seen grocery prices skyrocket, fuel prices go through the roof, and wages stagnate.
While the conventional economic wisdom is that interest rate hikes are counter inflationary in that they take money out of consumers' pockets and cool over-heated economies this was already happening before the RBA intervened on the eve of the election.
It is not unreasonable to ask if this latest increase had to be so substantial given the government has indicated it has no intention of extending the 22 cent a litre reduction in the fuel excise which expires this month.
That will send the price for unleaded at the bowser back up to well over two dollars a litre. It will be interesting to see if Dr Lowe is called upon to justify the magnitude of the increase when he speaks at a business economists' lunch on Thursday.
With an inquiry into the Reserve Bank already underway, and given the widespread criticism of its recent performance, Dr Lowe owes the Australian people an explanation for how he and his board members got it so wrong and what they intend to do to make sure it doesn't happen again.
The bank's reputation has been badly damaged.
ISSUE: 39,697
WHAT DO YOU THINK? We've made it a whole lot easier for you to have your say. Our new comment platform requires only one log-in to access articles and to join the discussion on the Newcastle Herald website. Find out how to register so you can enjoy civil, friendly and engaging discussions. Sign up for a subscription here.
