There are, as the Reserve Bank governor, Philip Lowe, reminded us as he announced a record 10th consecutive interest rate rise, “a range of potential scenarios for the Australian economy”.
One scenario, it seems, involves interest rates not rising much further. In fact, the RBA’s pre-Easter gathering on 4 April may mark the final rate hike in this cycle.
Lowe will front a summit in Sydney on Wednesday morning which will provide more clues. As will the publication on 21 March of the minutes of Tuesday’s board meeting.
But Lowe has left a few markers that – pending some unanticipated burst of inflationary pressure – the peak cash rate is coming into view.
Ditched was his sharply hawkish tone that stung many in February, that the board expected “further increases in interest rates will be needed over the months ahead”. Pundits figured “increases” and “months” suggested hikes each month to May at least, making it a neat dozen increases in a row.
Instead, Lowe’s language shifted, with him saying “further tightening of monetary policy will be needed” to ensure inflation is returned to the bank’s 2% to 3% target over time. Threats that could revive a more hawkish stance seem to be abating.
On one hand “the monthly CPI indicator suggests that inflation has peaked in Australia”, Lowe said on Tuesday, referring to January’s easing of the CPI index to 7.4% from 8.4% in December.
On the other, “wages growth is still consistent with the inflation target and recent data suggest a lower risk of a cycle in which prices and wages chase one another”, he said. The 3.3% annual rise in the wage price index in the December quarter marked a record retreat in real terms.
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In fact almost every stat since the 7 February RBA meeting has missed economists’ expectations on the low side, from the slowing GDP growth (to zero on a per capita basis) to rising unemployment and sagging retail sentiment.
So if there is merely “further tightening coming”, the odds do seem to favour one rather than more rate rises to come. And if Lowe is consistent, we can speculate that April would be the occasion.
Recall, from his appearance before the House of Representatives’ economic committee last month, that consistency is Lowe’s thing.
“[If] you are doing [rate rises] consistently over a number of meetings, that keeps public attention on monetary policy and the seriousness of the task that we have,” Lowe told the MPs.
“So when we are changing them each month, that gets a lot of coverage ... people focus on it incredibly strongly,” he went on. “The world is uncertain, and when it is uncertain, it is better to move consistently and predictably rather than in steps.”
That uncertain world, of course, could yet throw Lowe off this predictable path.
Some banks are already calculating how a rebounding China from draconian Covid restrictions will spur growth in New Zealand. Given Australia’s exposure to the Chinese economy – from trade to incoming student, tourists and migrants – our boost might even be larger.
Then again China’s modest 5% GDP goal for 2023 might limit external stimulus to the extent it accurately reflects that nation’s growth challenges.
And as Lowe warned on Tuesday, global inflation “remains very high”, including for services, which lately happens to be the main source for Australian price pressures too.
Still, without external surprises, the domestic die is largely cast.
Even before the RBA started lifting rates last year, it was clear a financing “cliff” loomed as those on fixed interest rates faced when their loan terms expired.
The impact of the $270bn of such mortgages shifting from relatively low to suddenly higher interest rates this year was clearer still by the end of 2022.
And given the lagging impact – up to two years – of interest rates on the wider economy, Lowe may feel his work is almost done. Save for one last Easter bunny.
