Tuesdays pause gives us hope that rate hikes are done. Are they?
Is the RBA finally done?
After the most aggressive rate hiking cycle in history, the RBA’s pause on Tuesday gave us hope that they might finally be done.
It does seem to be the vibe. All the recent data has come in softer than expected, so the RBA seems happy to wait and see for now. There’s definitely no sense of urgency.
I’ve been reading what market economists are saying about it, and most seem to think that we’re done now (or that we might get one more.)
Commonwealth Bank senior economist Belinda Allen for example reckons we’re done:
“We had thought the RBA would raise the cash rate in August due to lingering concerns around the strong labour market and upside risks to inflation and wages growth,” Ms Allen said.
“It would take an upside surprise to the economic data from here, namely on prices and/or wages, for the RBA to shift its assessment of the outlook.”
UBS chief economist George Tharenou agrees,
“We think risks are still tilted towards more tightening, given unemployment is close to a historic low, and upside [risk] to house prices from an extended hold, which could support spending,” Mr Tharenou said.
“But, today’s decision makes us unconvinced the RBA will act on stronger data.”
And AMP chief economist Shane Oliver (who had previously pencilled in two more hikes in the coming months), believes we’re very close to the top now, especially given that not all of the most recent hikes have filtered through into the economy.
“The RBA now appears to be giving more weight to the downside risks to the economic outlook flowing from the lags with which monetary policy impacts the economy and uncertainties around household spending,” Mr Oliver said.
But not everyone is convinced, especially since inflation isn’t fully back in the box, and the current interest rate settings aren’t all that restrictive.
Tae Vanguard senior economist Alexis Gray for example, who’s expecting at least another two hikes:
“Core inflation is still elevated and somewhat sticky, suggesting it will take further rate hikes for inflation to fall back to the RBA’s 2 to 3 per cent target,” Ms Gray said.
“In addition, the cash rate is only 4.1 per cent – a mere 0.3 per cent above the RBA’s estimate of the neutral rate of 3.8 per cent – implying that policy is not very restrictive and needs to tighten further.”
My own sense is that we’re probably done, perhaps with one more just for good measure.
Globally, the fight against inflation seems to be one, and Aussie households are clearly adjusting to a greater interest burden.
Anymore at this stage risks a nose-dive landing, and with inflation clearly coming down, its’ just not a gamble worth taking.
So that’s my bet. We’re done for the year, with a 25% chance of another one in there somewhere.
But my sense is that for a few months at least, the RBA will be very happy to sit on their hands.
DB