It’s not quite the pause that refreshes, but the Reserve Bank has eased up on its aggressive squeeze on borrowers.
The central bank is reloading the page to see what effect its first five hikes have had, given the substantial administrative lags in the banking system.
The RBA is not convinced inflation is beaten and wants to assert its resolve that it “will do what is necessary” to return consumer prices growth to the required 2 to 3 per cent target band, so this 0.25 percentage point move is just enough to claim that.
In his statement on Tuesday, RBA governor Philip Lowe said the “further increase in interest rates will help achieve a more sustainable balance of demand and supply in the Australian economy”.
Plus, uncertainty from a vastly more precarious global economy, our export prices under more pressure, and the value of retirement nest eggs taking a beating, calls for policy vigilance. On all fronts.
Jim Chalmers is delivering an out-of-season budget in less than three weeks and the rapid turn of events in Britain and the US has put a target on the backs of custodians and central bankers the world over.
Like it or not, the show runners in macro policy land at this fevered moment are preoccupied by the dramas of Trussonomics and the US Fed as avenging angel on inflation.
Our monetary and fiscal circumstances are materially different from our Anglo peers and the two policy arms are, for now, working in tandem.
Officials here are more sanguine about pay pressures, and the possible threat of a wage-price spiral.
Yet peril abounds and likely recessions in the US, China and Europe mean we need economic insurance and prudence.
The RBA’s new cash-rate target of 2.6 per cent, up from 0.1 per cent at the start of May, is more contractionary than the implied shift to just above a technical “policy neutral” of 2.5 per cent.
Make no mistake, there is interest-rate pain coming for recent homebuyers, who are also likely to have seen a drop in the value of their home.
Lowe says he expects to increase rates in the period ahead, but that will depend on the global economy, household spending, and wage and price-setting behaviour.
Despite a foul mood in the mortgage belt, there is strong momentum in consumer spending and many businesses appear confident they can maintain their cheeky price margins on goods and services.
Yet as the RBA governor said in his policy statement on Tuesday, people are finding jobs, gaining more hours of work and receiving higher wages.
“Many households have also built up large financial buffers and the saving rate still remains higher than it was before the pandemic,” Lowe said.
The Treasurer insists he doesn’t want to make the RBA’s job more difficult than it is.
Chalmers, too, seems to have shifted down a rhetorical gear in the wake of the Tory brain-pop.
He promises Labor’s no-frills October 25 debut won’t be a “vanity exercise”, more a subdued accounting, a targeted down-payment to loyal voters, and a prelude to the fiscal grind that begins next year.
The Queenslander won’t be hacking away at big government just yet, but he can’t avoid refreshing Canberra’s ways and means to tame a wayward budget.
A fiscal pause won’t cut it.
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