Flashnote: RBA raises and sets sights on more to come
Today’s interest rate rise by the RBA was slightly higher than expected, raising rates by 0.25% to 0.35% compared to market expectations of 0.15% to 0.25%. That’s not really the point though.
What we’re looking at is what happens next and from today’s statement it seems like we are now confirmed to be in a multi-stage increasing cycle. There’s even a hint of panic now with the central bank feeling like it went overboard when cutting rates to as low as they have been over the past two years.
We’ll go even further to suggest that the RBA is quickly losing its global reputation and respect. More on that another day.
The thing that stuck out the most was “The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.” We think the RBA is now at risk of raising too hard and too quickly. Inflation is a big problem and the most recent print is too high to ignore. But when looking forward, we actually think any rise from recent lows will have a dampening impact on the economy and impact long term growth.
Bottom line: The RBA is late to the game again. We have voiced our concerns since late last year/early 2022 that its policy setting is too slow to react. It would have been better to change chorus late last year, move earlier this year and provide a sense of control rather than panic.