I’m expecting another 50 basis points today. It will be a mistake.
So the RBA Board meets later today, and my bet is on another 50 basis point hike.
I think modesty prevents them from doing anything else.
And partly that’s because the US hiked rates a whopping 75 basis points last week, and with the tide of global monetary policy running one way, the RBA can’t really be the odd duck out.
But partly its also because not hiking rates would be a bit embarrassing, given the noises the RBA has been making over the past couple of months.
Markets expect it now. It’s practically baked in. To not deliver would risk the RBA’s credibility, and given that this is the same RBA that less than a year ago was promising that we’d see no rate rises until 2024 (seems border-line insane in hindsight), credibility isn’t something the RBA has a lot of right now.
And my bet is that the RBA was wishing right now that they hadn’t egged expectations on quite so much.
I actually reckon they’d be wishing they could actually take a little breather.
Because we got inflation data last week.
It came in relatively hot, though no hotter than markets were expecting.
Prices were up 1.8% in the quarter, which is strong, giving us an annual inflation rate of 6.1%.
Aside from a brief movement when inflation touched that kind of level after the implementation of the GST, this is the fastest rate of inflation since the early 90s.
And who can even remember that?
That said, while the annual rate is high, a quarterly lift of 1.8% is down on the 2.1% we saw in the March quarter.
This suggests that quarterly inflation may have already peaked.
And when you remember that commodity prices, particularly oil and wheat, have already peaked, you begin to get the sense that inflation is perhaps not going to be as bad as we feared.
Markets are beginning to get this sense too.
They’re ratcheting back how high they think interest rates will get this cycle – the so-called ‘terminal rate’.
It was around 4.5% just a few months ago. Now it’s down to a much more reasonable 3%.
4.5% always seemed crazy to me, and even 3% would be on the high side of my expectations.
Inflation seems to be peaking.
And yes, we’ve got more price impulse from rising electricity prices still coming down the tube, but now the government seems to be seriously considering a domestic reservation, which if implemented ‘courageously’ would drop retail electricity rates like a stone.
So is the outlook for prices really that dire.
Poor RBA. After slamming on the accelerator too hard it now looks like they’ve slammed on the brakes too hard.
Who would be a central banker hey?