Time for the RBA to do its job properly and lift interest rates in May

RBA governor Philip Lowe. Picture: Richard Dobson

Whack! Down went the Dow by nearly 1000 points overnight Friday, as the realisation that interest rates are finally going up in the US spread among the ravenous wolves of Wall St.

Back here in Oz, there was a similar spreading realisation among the commentariat that the Reserve Bank might actually do its job and also make its first official rate rise in nearly a dozen years at its coming meeting Tuesday week.

The local commentariat had been universally agreed – and I mean 100 per cent universally agreed, bar one – that the RBA would make its first rate hike in June, and then do only a token 0.15, to get the rate back to a regular 0.25 per cent.

The ‘bar one’ was me.

I’ve been arguing for weeks that if inflation comes out anywhere close to what’s now expected for the March quarter, when the CPI statistics are released by the ABS next Wednesday, the RBA has to hike in May and it has to hike by 0.4 per cent, to get the rate to 0.5 per cent, not by a piddling 0.15 per cent.

The universally agreed argument’s been that the RBA wouldn’t want to hike in the middle of the election campaign; and so would wait to do it in June.

Nothing more graphically exposes the utter shallowness that passes for our commentariat. Do these – and there really is no other word for it – idiots have the slightest understanding how political, and obviously political, that would be?

Deliberately postponing, indeed hiding, a rate hike and increased loan repayments until after the election?

This is not a case where the RBA might be thinking about making a rate hike at some time in the future.

The RBA has to hike in May and it has to hike by 0.4 per cent, to get the rate to 0.5 per cent. Picture: NCA NewsWire/Joel Carrett

The idea that its policy rate could stay at 0.1 per cent ‘forever’ – far less, especially when inflation right now is running at 5 per cent-plus – is utterly ludicrous.

The, for want of a better word, ‘evolution’ of the commentariat’s rate forecasting is exactly captured by the ‘doyen’ of the forecasters, Westpac’s chief economist Bill Evans.

At the start of the year Evans was forecasting that the first rate hike would only come – wait for it – in 2023, next year.

Then from mid-January and right up to until the RBA’s April meeting, Evans had been forecasting that the first rate rise would come in August.

After the meeting and the dropping by governor Philip Lowe of the word ‘patient’, Evans abruptly brought his timing forward to June; but he still only forecast a token and as I would put it pathetic 0.15 per cent.

Now, late in the week, Evans has finally come round to a 0.4 per cent hike, but still only in June. Maybe after the CPI on Wednesday, he will finally entertain the idea of a hike the next week.

As I explained two weeks ago, the RBA hiked in the middle of the 2007 election campaign.

That’s of course well known. But what I also explained is that the only reason it didn’t also hike in the middle of the next, 2010, campaign is that it had already hiked, and hiked three times in the months just before the campaign.

The idea that the RBA had some sort of ‘rule’ against hiking in an election campaign is a fiction and a fantasy; the sort of idiocy that takes root in the empty minds of the commentariat.

We’ve only had these public official rate changes since 1990 and running into most of the elections since then, the RBA might have been thinking about rate cuts.

A parallel is the mantra about ‘how difficult it is for Labor to win from opposition’.

Opposition leader Anthony Albanese was reciting it during the week: how Labor had only won government from opposition three times since the Second World War.

Well, until 2013, exactly the same had been the case for the Coalition. Until that victory, both had only won from opposition three times.

Think about it. It’s the same as in football matches: if one team scores every other goal; the other team also scores every other goal.

What the RBA does with rates is most critical for home loan borrowers – and, let’s not forget, depositors who have quite simply been screwed by the totally artificial and totally unnecessary panicked 0.1 per cent official rate.

What the Fed does drives Wall St and our local share market. And at the end of the day, faced with doing its job and hurting Wall St, I think – I know – the Fed will buckle and we will end up with a messy mix of a share market falling and inflation staying stickily high.

Having watched the RBA for over 30 years now, it’s always done its job even when it was uncomfortable to do so.