The more time the RBA gives households to adjust to higher rates, the more time wages growth has to offset the impact of the reduced purchasing power.
In the technical lexicon, Aussie financial conditions have already tightened appreciably. We have seen this in both private sector mortgage rates and public sector repayment costs. The interest rate that we as taxpayers ultimately pay on the Commonwealth government’s bonds has leapt from just 1.1 per cent in August last year to 3.2 per cent at the time of writing.To be clear, the RBA has no desire to aggressively jack up rates only to push the economy into recession.
The RBA also knows that with the household debt-to-income ratio at record highs, Australians have never been more sensitive to rate changes. It has historically got housing market reactions to its policy changes horribly wrong . In this context, it was pleasing to see the RBA adopt the use of the comprehensive housing model developed by its former economists Trent Saunders and Peter Tulip, which this column has
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