OPINION: The central bank has moved quickly to normalise monetary policy. But the pace needs to slow to avoid a problematic downturn.
The RBA has acted forcefully to get monetary policy back to a more normal setting with back-to-back 50 basis point hikes following the initial 25bp increase in May. The cash rate has increasedIt is entirely appropriate and will do much to reduce the medium-term inflation risks Australia is confronting.
Our home-grown inflation threat is being generated by the labour market where the aggregate demand from labour is rocketing miles above the underlining supply of new workers entering the economy.Just about every indicator of labour demand is at record highs. Job vacancies are going vertical, rising at more than a 50 per cent annualised pace over the three months to May.
Wage growth is rising and not just because of the decree of the Fair Work Commission. Labour turnover as measured by the number of people changing jobs in the last year experienced its largest rise in four decades over the year to February 2022. There is evidence that suggests it is the change in labour turnover that matters for wages, rather than the outright rate of turnover.to play in bringing the demand for labour into line with supply. This is no precision exercise.
The impact of the RBA’s interest rate policy on the economy can be judged by both the level of interest rates and taking into consideration the effects of changes in the nominal cash rate on cashflows across the economy. Raising interest rates, even when they are well below neutral, has a short-term contractionary effect on the economy.
The short-term neutral cash rate is difficult to observe and will change in a relatively short time-frame.This is why the RBA needs to slow down the pace of tightening over the second half of the year. They need to see how the change in the cash rate impacts people’s behaviour and market outcomes. My expectation is that they will have no choice but to respond to a large Q2 CPI in early August with a 25bp hike or even a 40bp increase. .
Australia Latest News, Australia Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
There's water everywhere, but Western Sydney residents are being asked to use lessDozens of suburbs in Sydney's west have been issued a conserve water warning as the processing plant that services them is forced to slow operations down following the floods.
Read more »
Australia news LIVE: Sydney flood risks grow as rain continues to fall across the east coast; RBA hikes interest rates to 1.35 per centAustralia news LIVE: Sydney flood risks grow as rain continues to fall across the east coast; RBA hikes interest rates to 1.35 per cent
Read more »
Australia news LIVE: Sydney flood risks grow as PM promises access to disaster payments from tomorrow; Nick Kyrgios accused of assault of ex-girlfriendThe TGA has granted provisional determinations for two Omicron-specific coronavirus vaccines manufactured by Pfizer, allowing the pharmaceutical giant to apply for the shots to be approved in Australia.
Read more »
Confirmed: The banks to pass on RBA's cash rate riseThree of Australia’s largest banks have increased interest rates after the Reserve Bank of Australia’s decision on Tuesday to raise the cash rate by 50 basis points to 1.35 per cent.
Read more »
Aussie banks pass on 0.50 per cent rate hike in full one day after RBASeveral of Australia&x27;s biggest banks have passed on the Reserve Bank&x27;s 0.50 per cent rate hike in full a day after the central bank moved to control soaring inflation.
Read more »
Budget repair must dovetail with RBA rate risesOPINION: Criticism of Anthony Albanese travelling overseas is silly. But he now needs to get down to business at home and start explaining to the public why fiscal repair must begin immediately.
Read more »