Rates hike next week is a near certainty, and PM has only himself to blame
It’s almost certain. Mortgage rates will rise from next week.
Prime Minister Scott Morrisonsays there is no need for a royal commission into the nation's Covid response. (AAP Image/Mick Tsikas)
Although economists have been wrong before there is a strong consensus that today’s inflation figure of 5.1 per cent for the past year will force the hand of the Reserve Bank board when it meets next week.
There is nothing that Scott Morrison, or indeed anyone, can do about it now. If it doesn’t happen next week it will happen in June.
A portion of the inflation is outside Government or RBA control and is related to factors like the Russia-Ukraine conflict and Covid supply constraints.
However, Morrison and his Treasurer Josh Frydenberg did have a choice earlier this year when they handed down the Budget.
The Government could have chosen a more restrained path in the Budget, but they couldn’t help themselves so the result is a likely rate hike in the middle of an election campaign and arguments about the Government’s handling of the economy.
And it isn’t something that snuck up on the Government. The markets have been pricing in a rate hike for May/June for about a year.
There was an option then to haul back some of the massive amount of stimulus delivered through unwarranted corporate support during Covid. That wasn’t something at the margins, it was billions of dollars. Morrison chose not to.
According to the ABS, inflation in non-tradeable goods, which relate to domestic factors, was at a nine-year high which is a pressure point for the RBA. Food, transport, housing costs have all gone up, wages haven’t.
The expectation is that the RBA will deliver a .15 increase to the cash rate next week. Another one of 0.25 per cent is likely to occur in June and it won’t be the last in this cycle.
Westpac and the CBA have suggested the RBA would wait until June before delivering a 0.4 per cent hike which would lift repayments on a $650,000 loan by $129 a month, according to RateCity.
ANZ was thinking along the same lines but today’s inflation figures changed their minds.
The cash rate is expected to hit 2 per cent in 2022 and 3 per cent in 2023. At that level, variable mortgage rates would be over 5 per cent.
The RBA board will be accused of being political by making a decision in the middle of an election campaign but no matter what it does it will face that accusation. If it held off until June there would be sections of the market who would accuse it of siding with Morrison.
Neither is true. It doesn’t have a choice.
