OPINION: Phil Lowe has been very clear that rates are going higher. The real problem has been a widespread economic narrative about a miracle way to bring down inflation.
The apparent shift in perceptions about the economy and interest rates this past week was more about athat had taken hold in Australia over the past six months, as it was a radical shift in RBA thinking.
Indeed, at the last board meeting in December, it revealed there had been an open discussion about a 0.5 percentage point rate rise. I am sure 0.5 percentage points was discussed last Tuesday as well.For those who were surprised by the monetary policy announcements last week, it was driven by their misreading of the economic and financial situation as opposed to the RBA giving misleading signals that have suddenly been reversed.
I could argue that this view was always based on weak analytical and historical foundations. It doesn’t matter; that view has been consigned to the dustbin by the IMF’s upward revisions to global growth a few weeks ago, and the RBA’s guidance that further rate rises should be expected. Economists and markets may want to call another one, two or three rate rises are left in the cycle, but the reality is that the RBA board cannot be confident about the level of interest rates at which they will be able to pause.Two options available
There is also a legitimate concern that the so-called mortgage cliff will suddenly supercharge monetary policy in the middle of this year. Echoes of the US sub-prime mortgage crisis and the role of adjustable rate mortgages in that disaster are very real.
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