It is now two years since the Reserve Bank of Australia started raising the cash rate. Early indications are emerging that the sharp rises will play out as expected given the accepted wisdom that monetary policy operates with long but variable lags.

Household savings, complements of the fiscal largesse of 2020-21, gave plenty of scope for spending to continue, along with wages growth and employment gains. An RBA paper last year pointed to a host of reasons that mortgagees could cope with higher rates for quite a while. Household spending growth raced ahead post COVID-19 but more recently it is softer – with a precipitous drop in consumer sentiment.