John Rolfe: We are nearing the end of the interest rate hikes
The RBA board could have left the cash rate at 3.1 per cent – a level likely high enough to bring down inflation in a timely way. But the RBA has a history of going too far, writes John Rolfe.
National
Don't miss out on the headlines from National. Followed categories will be added to My News.
Was this rate hike really necessary? Probably not.
Arguably the Reserve Bank of Australia board could have left the cash rate at 3.1 per cent – a level likely high enough to bring down inflation in a timely way.
But the RBA has a history of going too far in every direction.
It held rates too low for too long during the pandemic and now finds itself having pushed through the biggest total increase since records began in 1990. These increases will likely turn out to be too much and too fast.
However, just as the RBA did not want to get caught on the wrong side of history by having done too little to support the economy during the darkest days of Covid, it doesn’t want to later discover that it should have done more to stop big prices from becoming the status quo.
It would rather overshoot (again) then make a half-hearted apology (again) for having to reverse course (again) to boost growth, slow unemployment increases and stabilise the property market.
Some of the best economists think interest rates will be falling by the end of this year.
Certainly the rate of inflation will start to fall.
It is probably falling right now.
There is unanimity among business owners, union bosses and economists surveyed by the RBA that price increases will moderate substantially in 2023.
Later this week, the RBA will publish new forecasts for economic growth and unemployment.
The Reserve is likely to say that growth will be weaker and joblessness will increase more quickly.
That’s what happens when you raise interest rates nine times in nine board meetings.
Once inflation is clearly under control, the RBA will want to boost GDP growth and lower unemployment.
Getting the economy going and halting unemployment increases may require interest rate cuts, which would also precipitate a return to rising property prices.
Before that, the RBA is expected to increase rates again next month. It is quite likely that Philip Lowe will then have a breather, for at least a month, to assess new inflation figures.
We are nearing the end of the hikes.
State days from mental health ‘disaster’
The health system in one Australian state is on the verge of going “off a cliff” with more than half the mental health workforce set to quit.
PM’s plan to confront anti-Semitic attacks
The Prime Minister has revealed how he plans to tackle a rise in alleged anti-Semitic incidents across Australia after coming under fire in recent weeks.