Martin Place is tying itself up in intellectual knots trying to rationalise a rate hiking cycle based on rubbery forecasts.
“The sector as a whole has large liquidity buffers, most households have substantial equity in their housing assets, and lending standards in recent years have been more prudent and have built in larger buffers for interest rate increases,” she said this week.
The RBA counters it never “promised” not to raise rates. It certainly “committed” not to increase them and made that a promise by explicitly fixing the interest rate on the 2024 government bond at the same 0.1 per cent level as its overnight cash rate. And it spent billions defending the promise – until it suddenly did not last October.The RBA’s confidence in the strength of the household sector’s ability to withstand interest rate shocks sounds too good to be true.
The scarier interpretation of the same chart is that 40 per cent of all borrowers will face a massive increase in their monthly mortgage repayments exceeding 30 to 40 per cent. You get a similar sense of this fragility in other data.
The RBA has claimed that for Australia to sustain inflation within its 2 per cent to 3 per cent target band, it requires wage growth of 3 per cent to 4 per cent annually. Despite there being no clear evidence that the Aussie economy is meeting this test, the RBA is blindly lifting rates like an inflation nutter.The discombobulation characterising the RBA is manifest everywhere.
Asked about this topic again during the week, Bullock responded: “We’re at, as I’ve said, extraordinarily low interest rates, and we’ve got to get it up to some sort of concept of what you might call the ‘neutral interest rate’, which means it’s neither expansionary nor contractionary.”
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