rba

The bullish market reaction to the latest US inflation read, should come with a pinch of salt.

Consumer confidence is at crisis levels, but households aren’t acting to change spending patterns.

The Reserve Bank of Australia (RBA) board raised its official cash rate last week for a third consecutive month. The bank has adopted a dovish stance saying future hikes are “not on a pre-set path” and that the economy will likely slow as a result of these hikes.

A 50bps interest rate hike by the RBA wasn’t what anyone was expecting. It takes the cash rate to 85bps – well ahead of most economists’ expectations. What are the knock-on effects?

Whilst it is clear that leaving interest rates at an ’emergency’ level isn’t appropriate, it is difficult to believe that the Australian cash rate will be above 3 per cent, as the market predicts, in 2023. A 50-basis point increase in mortgage rates that are in many cases below 2 per cent will hit people and businesses, but most likely property prices, hard. 

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