RBA – Page 23 – Digital Finance Analytics (DFA) Blog

The Mystery Of The Disappearing Buffers…

You may well remember the previous Treasurer trumpeting on about the $250 billion dollars of household savings which we have over 2020 and 21. And Phil Lowe recently quoted a similar figure in one speech, though on the ABC 7:30 seemed to lower it to 200bn. Those buffers came from multiple sources, including JobKeeper, other Government benefits, sanctions withdrawal from super, and of course direct household savings. We also know these same buffers are now being spent.

The Buffers question in an important one, especially given the forecast for continued rising rate, and the impact on the overall economy. In a recent RBA FOI, they discussed beefing up wording in a recent RBA Outlook, to “however, consumption growth could also be weaker than expected, for instance if asset prices were to decline or if the effects of higher inflation and interest rates weighed on discretionary spending by more than anticipated. This risk is most pronounced for households with relatively low savings buffers and high debt relative to income”.

Phil Lowe replied “When talking about uncertainties, I was a bit surprised there wasn’t more about how households/businesses/asset markets might respond to higher interest rates”.

We agree, this becomes the critical. ANZ Bank yesterday dramatically lifted its forecast for Australia’s official cash rate (OCR) to 3.35% by November 2022

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The Part-Time Amateurs At The RBA!

The RBA could soon see a major overhaul, amid accusations that its nine-member board lacks economic qualifications writes Frank Chung over at news.com.

As inflation skyrockets and borrowers grapple with sharply rising interest rates, a series of “embarrassing” missteps have focused public attention on the Reserve Bank like rarely before.

With the new Federal Government preparing to undertake a “once-in-a-generation” review of the RBA, former insiders have delivered a blunt assessment of the institution responsible for setting Australia’s monetary policy.

“The board is failing, and the reason it fails is because it lacks expertise,” said Peter Tulip, former head of research at the RBA.

Well, we argue the much needed review MUST be extended to include APRA and the Council Of Financial Regulators, the peak body chaired by the RBA as well.

A raft of poor policy and decisions have led us to create an over-leveraged society, at risk from rising interest rates. And there must be accountability and transparency, unlike at the moment.

But will the proposed review get to the heart of the matter – we doubt it.

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

The Property Crash Is Just Getting Started…

Following the Reserve Bank’s double rate hike, big banks have lifted all their variable mortgage rates by 0.5 percentage points.

As a result, the average variable borrower will have seen their rate rise by 1.25 percentage points since the start of May.

That means someone with a $500,000 mortgage, with 25 years remaining, will see their repayments increase by an estimated $333 in total across the three hikes, RateCity.com.au said.

While variable rate borrowers with loans with CBA, NAB, and ANZ will be charged a higher interest rate starting today, it will take weeks for their monthly repayments to rise. In fact, the increase in monthly repayments many of these customers are currently seeing resulted from the May hike.
This is because banks typically give 20 to 32 days’ notice before lifting their monthly repayments, despite charging their customers the higher rate from the effective date.

Even then, the increase to their monthly repayment might not take effect for another few weeks, depending on when they are due.

UBS has predicted interest rates will peak at around 3.5 per cent in March next year, but said this will still hit the housing market hard.

“We still think market pricing of about 3.5 per cent – if delivered – would likely crash housing, and see the economy nearing a recession,” George Tharenou, chief economist at UBS, told The Australian.

If interest rates were to rise to 3.5 per cent it would likely see the average variable mortgage rate hit a whopping 6 per cent and could plunge the economy into recession, according to the investment bank.

“Interest payments across the economy next year for the household sector will close to double from now,” Mr Tharenou said.

“We have never seen such a sharp increase in repayments. That really crushes household cashflow next year when you have cost-of-living issues.”

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Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

So 50 Basis Points It Is…

At its meeting today, the Board decided to increase the cash rate target by 50 basis points to 1.35 per cent. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 1.25 per cent.

NOTE this means the Banks will be getting an evening bigger windfall from the TFF facility – time to impose a windfall tax!

Global inflation is high. It is being boosted by COVID-related disruptions to supply chains, the war in Ukraine and strong demand which is putting pressure on productive capacity. Monetary policy globally is responding to this higher inflation, although it will be some time yet before inflation returns to target in most countries.

Inflation in Australia is also high, but not as high as it is in many other countries. Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role. Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices.

Inflation is forecast to peak later this year and then decline back towards the 2–3 per cent range next year. As global supply-side problems continue to ease and commodity prices stabilise, even if at a high level, inflation is expected to moderate. Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services. Medium-term inflation expectations remain well anchored and it is important that this remains the case. A full set of updated forecasts will be published next month following the release of the June quarter CPI.

The Australian economy remains resilient and the labour market is tighter than it has been for some time. The unemployment rate was steady at 3.9 per cent in May, the lowest rate in almost 50 years. Underemployment has also fallen significantly. Job vacancies and job ads are both at very high levels and a further decline in unemployment and underemployment is expected over the months ahead. The Bank’s business liaison program and business surveys continue to point to a lift in wages growth from the low rates of recent years as firms compete for staff in the tight labour market.

One source of ongoing uncertainty about the economic outlook is the behaviour of household spending. The recent spending data have been positive, although household budgets are under pressure from higher prices and higher interest rates. Housing prices have also declined in some markets over recent months after the large increases of recent years. The household saving rate remains higher than it was before the pandemic and many households have built up large financial buffers and are benefiting from stronger income growth. The Board will be paying close attention to these various influences on household spending as it assesses the appropriate setting of monetary policy.

The Board will also be paying close attention to the global outlook, which remains clouded by the war in Ukraine and its effect on the prices for energy and agricultural commodities. Real household incomes are under pressure in many economies and financial conditions are tightening, as central banks increase interest rates. There are also ongoing uncertainties related to COVID, especially in China.

Today’s increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic. The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed. The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.

Today’s The Day…

The RBA is widely expected to lift the cash rate again today, perhaps to 1.35% — a level not seen since May 2019. Market Economics is forecasting a larger 75-basis-point move.

The RBA is behind its peers, having held rates near historic lows until increases in May and June that lifted its benchmark by a total 75 basis points to 0.85%. A 50-basis -point hike on Tuesday would mark the first time Australia has hiked by that amount at consecutive meetings.

Morgan Stanley, expects 50-basis-point increases in July and August, followed by quarter-point hikes through to November, taking the cash rate to 2.6%.

“Broader slowing of jobs and inflation won’t be felt until late this year, keeping 2H22 rate hikes on track, even as risks grow for 2023,” he said.

You can join my live show at 8pm Sydney when I discuss the outcome with Chris Bates, mortgage broker in Sydney. https://youtu.be/xur8dSSFcTw

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Weird: Credit Is Easing While Job Vacancies Boom!

The latest credit data from the RBA and APRA show ongoing growth, though the rate is starting to ease, and will do so more as rates rise. The ABS data on vacancies reveals a significant number of jobs on offer. We suggest the low wage environment is part of the reason why people are not grabbing them. This could turn to custard quite soon now.

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Is The RBA Doomed?

The RBA is beset with issues, paying money to the banks due to the Term Funding Facility, negative equity on its balance sheet, and a more rigorous review than they wanted, which given their recent failures (no cash rate rise until 2024) is warranted.

Does it retain any credibility?

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

The RBA Says Rates Are Going To Rise Further…

Reserve Bank of Australia governor Philip Lowe appeared on the ABC’s 7.30 television program last night. I cannot recall the last time an RBA Governor did this – which to me signifies the importance of the event at this critical and uncertain time.

Overnight again the US markets mostly slid, ahead of the Federal Reserve rate decision tomorrow. Views that a 75 basis point hike was on the table have been growing after Friday’s higher-than-expected consumer price index (CPI) data for May.

Governor Lowe said inflation will peak at a “very high” 7 per cent later this year, and ease back next year. Dr Lowe said it was “reasonable” to expect the cash rate to eventually reach 2.5 per cent, in line with the midpoint of the inflation target, but he admitted it was “unclear” how high rates would go and how quickly.

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Exploring The World Economy Chart Pack

We explore the latest RBA chart pack, where signs of economic distress are rising on several fronts.

https://www.rba.gov.au/chart-pack/

Go to the Walk The World Universe at https://walktheworld.com.au/