OPINION: The RBA boss says there are two schools of thought as to what happens next, and “we’re all having trouble working out which is more likely to represent reality”.
, this would require the RBA board to embark on “the sharpest and quickest tightening of monetary policy that we’ve ever experienced in the inflation targeting regime”.To get to the 4 per cent level, he noted, the RBA board “would have to increase interest rates by 50 basis points at the remaining six meetings of this year, and have a 75 basis point increase in there as well”.
It is likely that financial markets are overestimating how high the RBA will push interest rates. Australian consumers are extremely sensitive to rising interest rates, given the onerous level of household debt.Already, the combination of rate increases and a higher cost of living is causing consumer sentiment to sour.
“One is that high inflation is cutting into people’s real incomes. We see this here, but in the United Kingdom, it’s particularly noticeable,” he said. “And that oil prices aren’t going to keep going up at 66 per cent a year – maybe they stabilise, or let’s hope they come down – and that that will change the inflation dynamic.
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