RBA can’t afford to pause on another interest rate hike
Australia’s cash rate might be a whopping 350bp higher than where it was a year ago, but the real short-term interest rate remains mired near historically low levels.
I am astonished that the financial markets have virtually no chance of a rate rise priced in this week.
The broader commentary is focusing on the large change in the cash rate over the past 12 months as determining a restrictive stance for Australia’s monetary policy. But economists should be highlighting the critical importance of the level of the real short-term interest rate in determining the appropriate monetary policy setting.
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Warren Hogan is managing director of EQ Economics.
