Had the Reserve Bank left its cash rate unchanged on Tuesday, a few pundits would have declared “Without a Fight” had won twice within about half an hour.
Instead, a 13th interest rate rise by the Reserve Bank will certainly tighten the squeeze for the half of the mortgagors already nearing the financial stress zone.
The consolation is Michele Bullock’s debut rate rise as the new Reserve Bank governor looks unlikely to be repeated next month. And depending on how much house prices and other “hot” pressure points cool, the cash rate may have peaked.
Indeed, short of an upside inflationary surprise, the central bank’s next move looks like being a cut. Still, without a nasty shock to the economy, borrowers will probably have to wait until roughly this time next year before that reduction arrives.
That Tuesday’s rate rise was backed in by the majority of analysts owed much to the form guide hinted at by RBA officials in the past couple of weeks. The September quarter inflation figures popped higher and that turned out to be “material” enough to convince Bullock and the RBA board it wasn’t time to raise a white flag.
Her predecessor, Philip Lowe, enjoyed the luxury of helming 29 board meetings before his first move – a quarter-point rate cut in June 2019. No early test to his credibility, then, although his record will be remember for overseeing the sharpest interest rate surge in at least three decades.
Bullock didn’t have enough clarity about the underlying inflation pressures in the economy to call an October rate rise although one wasn’t that far off. Minutes from the 3 October meeting introduced phrasing about a “low tolerance” for inflation not falling back at the predicted pace.
Come Friday, the RBA will release more details of the trajectory it expects inflation and other key economic indicators to track. Tuesday’s statement detailed a few of the key changes to the forecast table compiled in August.
The central bank still tips annual consumer price inflation will reach the top of its 2%-3% target range by the end of 2025, much as it did three months ago. It expects CPI to be at 3.5% at the end of next year, a nose higher than the 3.3% pace it had expected by then.
Not a dramatic change, but enough for Bullock to get the rates whip out another time.
A silver lining in the revision is the RBA reckons the labour market will hold up a bit better. It expects the unemployment rate will rise only “gradually” and crest at 4.25% compared with a previous peak predicted of 4.5%.
Forecasts, of course, are often off the mark. But the difference would amount to tens of thousands of people not losing their jobs, a welcome result and no small achievement given the size of the population pulse working its way through society. (Wages have picked up but increases are “still consistent with the inflation target, provided that productivity growth picks up”, the RBA said. Quite a qualifier, though, on recent productivity form.)
Wages figures for the September quarter and October labour market numbers land on 15 and 16 November, and will likely set the scene for the board’s 5 December meeting to see out 2023. A pre-Christmas rates shock now looks unlikely.
Those squeezed borrowers can take some consolation. Australia’s official interest rates remain about one percentage point below nations such as the US, New Zealand and the UK even though their inflation rates have dropped below ours.
A nation of stayers, perhaps, after all.
