With the recent increase in the official cash rate to 3.85% I'm looking to hear your thoughts as to weather you agree with Philip lowe and the reserve bank for being aggressive with interest rates to stifle inflation, or perhaps you feel they are out of touch with the average Aussie?
I'm interested in public perception.
Lets put things into perspective as too many people are focusing on the "medicine" which a relatively few dont like and not the problem that impacts (hurts) on EVERYONE and more so the low income earners who never have enough money to cover their food and energy bills.
Remember that those with mortgages have the choice of selling thier house for a grand profit, so coming out way better off and cancelling out the loan, and hence the repayments.
But those on minimal incomes who are struggling to put food on the tables and dont have that choice.
Now consider this as well…
Last month the US FED raised thier cash rate by 0.25% to 5% with inflation running at 5% there.
At that level they are considered "neutral".
The FED is expected to increase them again this month.
The EU has rates at 3.75% with inflation running at 6.9% and still agressively raising them as they are still considered expansionary.
NZ raised them 0.5% to 5.25% last month with inflation running at 6.7%.
At that level rates are still considered "expansionary".
Yet in Australia we have the highest inflation rate running at 7% and with unemployment at historical lows.
However we have the lowest interest rate at the latest 3.85%.
At that level rates are still extremely expansionary (negative 3.15% REAL rate) which explains why our economy is still buzzing, the property market healthy and inflation remaining so high.
Clearly our rates are still far too low to have the desired effect on slowing the economy and cooling inflation.
And with thousands of migrants arriving daily and just adding to the problem (especially the rental market) our economy isnt going to slow down any time soon.
So when you look at these facts, how did all our economists get it so wrong?
Why did the RBA even pause last month?
Because they are all young-bloods who have never lived through a high inflation environment.
And they are simply ignoring the facts and basic economic theory that when interest rates are set below the inflation rate they are EXPANSIONARY !
And that interest rate cliff they are so worried about?
There is absolutely no evidence that this exists.
They forget that borrowers' incomes have increased every year over the last 3 or 4 years.
Some incomes quite dramatically.
There are no flood of forced sales. No mortgagee sales. In fact hardly anyone is selling.
So its all hogwash and scare mongering created the "News".
But in a nutshell to answer the topic..
No. The RBA has stuffed up big time
Lowe has already admitted that they kept interest rates far too low for way too long which has fueled this inflation fire
But so too has massive and unjustified government spending and the huge accumulation of government debt!!!!
And Lowe got it way wrong telling the public that interest rates would stay "Lowe" until 2024.
It is not the RBAs job to be making such forecasts and for that alone Lowe must be sacked!
Now Lowe is back peddling as quick as he can to put out the inflation fire!
And the Albanese government is spending more and more money which is adding to the inflation fire.
So dont take it all out on the RBA. They are just trying to address the inflation problem.
If you want to shoot bullets at anyone shoot them at the government who are about increase tax on low income earners by another $1500 per year! Yes thats 100% right. They are taking away the Low and Middle Income tax Offset (LMITO) put in place by the previous Liberal governemt. Its one of the biggest tax increases in our history. Thats a great way to ease the cost of living. Right ????
But it takes away income from a much wider base of Australians so should help with inflation (theoretically).
But would have been better and less painful to cut government expenditure instead
https://7news.com.au/business/finance/end-of-middle-and-low-…
And Lowe got it way wrong telling the public that interest rates would stay "Lowe" until 2024.
I believe his words were
“But our judgment is that we are unlikely to see wages growth consistent with the inflation target before 2024. This is the basis for our assessment that the cash rate is very likely to remain at its current level until at least 2024.”
Likely not a certainty.
Lowe still mislead the Australian public.
Many people took out mortgages OR held off selling, in the belief that rates would stay low at least until 2024.
Others "speculated" on property and found things difficult soon afterwards - bad luck for them.
Lowe should never have made that comment and he knows and has apologised for doing that.
However the point everyone missed is that you now take out a 40 year Mortgage as standard.
What were all these people expecting to happen after 2024?
The fact is that Dr Lowe made no suggestions that interest rates would stay "Lowe" forever.
Its classic case of not taking responsibility for one's actions - typically just blame someone else.
@HeWhoKnows: You are really upset that this fella can't predict the future?
He used the word likely. Blind Freddy could have seen rates will go up, it was just a matter of when.
@ajr5k: Saying likely for a 2 year forecast is stupid, no one can predict that far into the future with accuracy for inflation especially with the supply chain bottlenecks that were appearing back then. There is a duty of care when making claims just like a doctor or any other authority figure because words can have consequences, especially for a federal reserve body.
And no one saw it mate, otherwise property wouldn't have went up 25% nationally in 2021.
@Conformist: I'm not sure on the context of the statement, he may have been answering a question. Could have been where does the reserve bank think rates will be in 2 years type of question.
I also doubt that many people knew of that statement until last year when the media starting blasting it everywhere. Its just know when the impact is felt people get angry at it.
@tomfool: Yes it was framed in a very specific way however if you look at other federal reserves they are still very careful with their words, it was sloppy to make a forecast in any framing as it can always be taken at face value and they have decades on history to know this. There's a reason why the US Fed is so structured in the way they do their press briefings. The way the RBA does it is sloppy and if they don't know how to talk in the camera they should get a spokesperson with media training to do it.
@ajr5k: There are so many blind Freddies suffereing and very angry with Dr Lowe.
Unfortunately all these blind Freddies fail to take responsibilty for thier actions.
But the bottom line is that its not Dr Lowe's job to predict the future and provide false comfort that rates will stay low for the forseeable future. He has acknowledged this and has apologised.
Lowe's job is to analyse the current economy and set rates accordingly
Not predict the future and provide interest rate guidance 2 years out!!!!!
@HeWhoKnows: "typically just blame someone else." Exactly what the now burning 'over borrowers' are doing, isn't it? Because of inadequate due diligence.
Now they are blaming RBA,banks and other elements.
My sympathy goes to the renters who are now paying the difference in mortgage payments by proxy.
This mess is a product of global forces, allowing too many foreign incursions into our domestic HOUSING market. The market itself for encouraging so much greed into the housing sector. And the big driver?> an over-populated planet and every downstream problem that entails.
The world is wallowing in denial
To be specific: the US has simply changed weights based on 2 years of data to 1 year of data
From youir link…..
"Starting with the February 2023 publication of CPI data for January 2023, the BLS will annually revise the CPI weights based on a single calendar year of data, utilising consumer expenditure data from 2021. This differs from the prior method, which updated weights using two years’ worth of expenditure data every two years. "
But that doesnt really affect things that much.
Just makes the readings "more current"
But your inflation figues appear to incorrect
Current US inflation rate is 5% (March 2023)
See here:
https://tradingeconomics.com/united-states/inflation-cpi
Last month the US FED raised thier cash rate by 0.25% to 5% with inflation running at 5% there.
Most mortgages in the USA are fixed for the entire term though, so not really the same as here. People that got a house at 0.1% interest rates keep that 0.1% for the entire 30 years.
How is that relevent to the inflation rate?
This poor argument is what the anti-RBA pundents are using to criticise the RBA.
Its all smoke and mirrorrs.
The aim of increasing rates is to slow down the growth of debt and hence the economy.
If you are taking out a loan today in the US its at the higher rate, just as it is here.
And i suggest you take a look at Australia's inflation and interest rates history - particularly back in the late 80s and early 90s when we had similar inflation and mortgage rates here went as high as 18%.
See the argument you quote makes no sense.
They are taking away the Low and Middle Income tax Offset (LMITO) put in place by the previous Liberal governemt. Its one of the biggest tax increases in our history.
Instead of parroting propaganda, what is the total tax rate due last year vs next year?
I'm sure the biased source of your claims is ignoring the stage 3 tax cuts.
You obviously are not across the FACTS and dont understand the tax system
LMITO only benefitted low and middle income earners.
Stage 3 tax cuts mostly benefit higher income earners and in a big way!
This is FACT! Not propaganda as you suggest.
Thats why there was consideration and argument to abolish them.
But to answer your question this is taken from the article below:
"The LMITO was actually quite generous for low and middle-income earners, but the Stage 3 tax cuts are not.
For someone on the current median income of $65,000 the LMITO was worth $1,500.
That has now gone and has been replaced by a $500 tax cut under Stage 3.
That means that person will pay $1,000 more in tax once the Stage 3 cuts come into effect in 2024-25 than they did last year."
Arguably that is still a massive tax hit on low and middle income earners!
You know - The ones that can least afford it…right?
The point is that there is a strong argument that the LMITO should have been extended by at least another 12 or 24 months by the Albanese government if they were serious about helping with cost of living.
And the same government is about to make the biggest tax windfall gain in history from resource exports resulting in probably the first time ever a Labor govt had brought in a surplus - none of which was any of their work, changes or planning of course.
These are the same resource exports the delusional Greens are trying to stop.
Seems like you are the one being mislead by the leftist and Labor propaganda machine
More information that explains this here:
https://australiainstitute.org.au/post/the-stage-3-tax-cuts-…
@HeWhoKnows: Instead of comparing tax changes against the end of temporary measures designed for COVID relief, how about some unbiased reporting.
Refer to table 1
https://www.aph.gov.au/About_Parliament/Parliamentary_Depart…
Next time don't rely on propaganda spread by mainstream media.
I agree with you, the tax cuts disproportionately assist those on the highest incomes.
When you say the greens are trying to stop our exports, is this something they have said, or more twisting of words from the young liberals? Taxing mining companies isn't going to send them offshore, the minerals can't be moved overseas to be mined in a low wage country
@HeWhoKnows: I agree with everything here.
I do think we should keep the stage 3 cuts though. At this rate of inflation, low employment and high wage growth, a lot of people will be bracket creeped over the next few years. The average wage is already ~$90k.
What the federal govt should target is corporate profits like the what Rudd did with MRRT and some type of claw back mechanism on those large companies that took JobKeeper and turned a record profit i.e. A profit levy on companies.
I'm only in the accounting and financial advisory space, so tax policy is a little out of my scope but I think those are the areas that the Albanese govt should target.
A lot of details but you're missing a few key points.
Comparing US to AU is not a fair comparison as housing costs between the two are too disparate.
$200k - average mortgage US
$600k - average mortgage AU
Only 25% of mortgagees owing are paying the current variable rates and the remaining 70% are still on fixed rates. With another 40% due to expire end of this year.
Ofcourse only one side of the story, but in summary, they are raising rates without the economy feeling the impact of rate rises and continuing to raise rates.
At this rate, we will likely go into a recession by end of the year once people realize their mortgages have beyond doubled.
Your argument is irrelevent in fighting inflation.
Unfortunately you miss the point completely with raising interest rates.
Raising interest rates is aimed at slowing down credit growth which in turn slows down the economy, which then takes the pressure off inflation.
Those with existing loans and mortgages already have thier loans (credit) in place.
So raising interest rates either here or in the US has exactly the same effect in curbing credit growth.
Unfortunately you have been listening to biased progaganda aimed at the RBA from those that dont understand this important fact.
@HeWhoKnows: lol, mate your feeding words into everyone's comments.
And the irony on completely missing the point…
There's no argument up there and not here to discuss "fighting inflation"
Talking about the impact to existing mortgagees. 70% of them aren't feeling the pain, once the pain sets…
You probably don't have a mortgage? Or Lowe undercover? Right, he doesn't have a mortgage.
Amazing .. Nailed it !
your 7% figure includes 3/4 of 2022 data
its more like 5% as of march quarter
You seem to know a lot on the topic. Fill me on this one, does the term neutral make any sense? Surely funds rate impact is dictated by the amount of debt a nation has not whether the funds rate matches the inflation rate. If a country has 10 times amount of debt than another but both the same inflation surely neutral is different for one nation than another because let's say a 2% funds rate impacts the indebted country more than the other.
Nobody should listen to this person. Is the RBA doing a good job? It's the wrong question to ask. The problem is that the RBA, similar to the US Federal Reserve, has essentially only two jobs (dual mandate). To control inflation and to pursue full employment. And the only tool either really has to control inflation is via interest rates. The problem, in this case, is that the overwhelming evidence for what is driving inflation is breakdowns in supply chains and price gouging/corporate greed. Supply chain issues resulting from the pandemic, the war in Ukraine, and climate change’s effect on agricultural supply and therefore prices.
The real outcome (and purpose) of the RBA's blunt tool of interest rates is to discipline workers. Don't ask for a wage increase or we'll punish you further is the idea. The people immiserated most in a cost-of-living crisis end up being doubly punished and all it would take is Government to have a little vision and backbone and enact policy that would actually deal with the root causes. A big one would be to build far more public housing.
Just up it to 18% and be done with the stupidity.
Yes, 18% on an $80k mortgage. Not really comparable is it.
It is when $100 a week was a reasonable wage in many areas (min wage until mid 80s) ($167 was the median, with women earning much less)
@Benoffie: Nope, mortgage repayments even at 18% interest rates as a % of income was way lower back then.
@scrambledeggs: actually it was slightly higher, the late 80's early 90's it peaked slightly above current rates.
@scrambledeggs: Sorry, No.
as a percentage of income it was higher, certainly not "way lower".
Do people not do research before posting?
https://www.smh.com.au/property/news/mortgage-affordability-…
@scrambledeggs: It was - and this shows the inbalance in the price of houses - when (if) interest rates hit 18% again, house prices are sure to return to around the same percentage of income (at some point).
@Benoffie: In 1984 the average home cost 64k.
The average income was 19k p.a
The average mortgage was 42k
In 2022 the average home cost 920k.
Average income 91k p.a
The average mortgage 619k
I'll let you do the calculations.
@serpserpserp: In 1984, single income family is the norm.
In 2022 dual income family is the norm.
Please consider that when the calculation is done.
@berry580: and factor in what sort of goods the two households purchased during the eras.
"Having stuff" has never been more rife(2022) . ( read the room)
People adjusted to the circumstance (1984)
The amount of credit used for maintaining a lifestyle per capita back in 1984 would have been exponentially less % per household.
You can lead a horse to water, but try getting them off the couch, their smart phone or the internet, first.
Oh, and when all else fails. Blame the boomers.
@serpserpserp: 1984,
Home is valued at 3.3 x average income
Mortgage is 2.2 x average income
2022
Home is valued at 10.1 x average income
Mortgage is 6.8 x average income.
Now dual income let's say 150k
2022
Home is valued at 6.1 x average income
Morgage is 4.2 x average income
You are welcome, still scary.
@Cain0z: No need to @ me, I know the calcs. @berry580 might need a PowerPoint preso and whiteboard session to work it through tho.
@Benoffie: Can we not do this. Facts are out there confirming older generations were comparatively better off from a housing affordability standpoint. Let's skip the avo on toast and kids want it all bizo.
@drprox: Wasn't 'doing this'. The fact is, as a percentage of income, it has not been higher than 1990 until now. This week.
https://www.smh.com.au/property/news/mortgage-affordability-…
And frankly, that's still a small portion of homeowners. The large majority of mortgage holders hold reasonable mortgages that sit well within their incomes. Why? Because they borrowed within their means and are generally significantly into a 25-30 year repayment cycle.
Sick of this young vs old mentality. People are responsible for the decisions they make. That's it.
Many people out there borrowed in the pits of the 70 s and 80s crises, in the 90's Recession we had to have, and still again in the GFC. Even if you didn't, you were aware that 8-12% was a reality and that 5% was a gift.
Mortgages take sacrifice, as does inner city living and having your cake and eating it too.
And no, I'm not a 'boomer'. Seems to befuddle young people when other young people say 'work hard and suck it up'.
@Benoffie: And affordability has nothing to do with interest rates today
They are still at long term historical lows.
Its the ridiculous price of property which needs to be brought back down to earth again.
So its actually the huge amount that needs to be borrowed that impacts on affordability.
Only signiciantly higher interest rates will dbring property prices back down to earth.
Just like ridiculously low rates took them to the stratosphere!
@HeWhoKnows: Significantly higher interest rates are definitely not the only way to bring property prices down. Increasing the supply of housing by building far more public housing is just one very obvious option.
@drprox: Except houses are 2x larger today than 70 years ago.
Compare the post war californian bungalow with no bathroom, just a dunny out back.
With the 6 bedroom 4 bathroom 2 storey houses of today…
Income has also drastically increased since then. I remember when back then Income > $50k attracted $48.5% tax.
Nowadays income $125k would attract about 25% after LMITO and Deductions (27.1% if no LMITO/Deductions).
Back then, there was no Comprehensive Credit Reporting too so credits would have been far more liberal than these days and we still struggle.
Your comment shows how uninformed and unrealistic you really are.
As are your 1up voters - just NO IdEA WHATSOVER !
Go back and check out the average wage back then
then compare that to the property price and loan repayments back then.
And then work out what percenatge of ones weekly pay went into paying the mortgage
Add the fact that back then most families relied on a single income - not the dual income families of today
Ah, spot the Boomer pining for the good old days of 1989.
Bring back 1979 please.
Shakedown 1979
Cool kids never have the time
18% mortgages may be the end result with all these delaying and procrastinating tactics by the RBA.
But I don't think so. back in the late 80s mortgages started at 13% and went up to 18%.
I dont even know how people coped paying almost 1/5 of thier loan in interest payments.
I had to sell out long before they hit 17%.
My current mortgage rate is 7.5% with ANZ (Lucky I have paid it off)
Many others are still around 6.5%
I think mortgages could go up another 2.5% to 3% before this up-cycle in interest rates is over.
But dont expect them to come tumbling down again - maybe 2% or 3% from thier high.
And in the current cycle, why did the RBA stop increasing ther cash rates by 0.5% and instead go back to tiny incremental increases of 0.25% that now have little effect.
A 0.25% increase over 0.25% doubles the rate to 0.5%
But when the rate is 3.6% and increased by 0.25% thats not even a 7% increase.
(I refer here to the RBA cash rates)
Its the law of diminishing returns….
As the numbers increase, one must increase amount of increase to get the same/desired effect.
Obviously with current RBA cash rate at 3.85%, applying a "tiny" 0.25% increase is now having little or no impact on slowing down inflation, the economy nor even the property market.
Comes down to the economic argument that rates below the inftation rate stimulate spending and hence inflation whilst rates above inflation act to curtail spending
Its very basic economic theory
And by the way
In the US the FED has just increased their cash rate to 5.25% - which is 0.25% ABOVE the current US inflation rate of 5%. This whilst inflation has been falling, but not by far enough. US rates are considered to be in NEUTRAL territory now.
Its proof that this economic theory about the relationship between interest rates and inflation is still very relevent and that it will most likely play out here in Australia as well.
So with inflation remaining persistently high here in Australia, even if we get a slide back to 6%, you can expect the RBA cash rate could go as high as 6.5%.
You can argue all you like but history both current and past is on my side
By the way just quoting historical figures.
Last time inflation reached these dizzy highs…
In 1990 the US inflation RATE peaked at 5.40%.
The FED Funds rate peaked at 9.2% in 1989.
So FED funds rate had to be increased 70% higher than the inflation rate
In Australia in 1989/90 inflation peaked at 7.48%
However the RBA cash rate went all the way up to 17.5% in January 1990
So RBA cash rate had to be increased 130% higher than the inflation rate.
So much for the unfounded argument that most mortgages in the US are fixed and hence the effect of interest rates in the US is not felt as much as in Australia. In fact its quite the opposite according to history!
i.e. Our rates had to go much higher!!!
Not saying we are heading for 17.5% RBA cash rate.
But the RBA cash rate in Australia still has a way to go up if the inflation rate of 7% or even if it drops to 6% is any guide.
Oh yes and that does mean a possible RECESSION !
they are doing what the have to to get inflation down
they are not doing a good job becuz they should of upped interest rates eariler for a softer landing but in fairness hindsight is 20/20
personally i think they are 'ok' id sack lowe but otherwise what else can they do we have a government who rose min wage during a high inflation environment and have opened the flood gates of inflation at the same time….
personally i think the federal government is doing a crap job but i know id be in the minority based on how left Ozbargain is
if you wanted to control inflation we should just increase madatory super temporarily to reduce take home pay
personally i think the federal government is doing a crap job but i know id be in the minority based on how left Ozbargain is
They've been in power for what, less than a year? We're still impacted by policies and actions of the previous governments
he will get knifed once the referrendum fails
He will? I thought everyone would just move on and we'd finally stop hearing about it all the time after it fails.
He will? I thought everyone would just move on and we'd finally stop hearing about it all the time after it fails.
ill come back to this comment in 6mo post referrendum
Albo is probably as bad if not worse then Scomo and anyone thinking different is kidding themselves
Labor have a long way to go before they reach any liberal national party's corruption levels
Billions wasted in pork barreling(sports,car parks), blind trusts, hidden tenders, overpriced land acquisitions, billions upon billions rorted in the name of Paladin and "stop the boats", diesel powered subs, GBR fund, over half a mill for Barnaby Joyce’s drought envoy texts, secretly making yourself a minister in charge of portfolios, evacuating Australia during bush fires, Largest deficit and debt ever recorded, $80 million purchase of water entitlements , Helloworld, Cash tipping of media, dutton’s interventions to get approvals for two au pairs to stay in the country, stuart robberts internet bill, robodebt
And this is just the start of it I am barely scratching the surface
Show me the other sides
You cant
Stop being a LNP stooge
Labor have a long way to go before they reach any liberal national party's corruption levels
you're fool if you think LNP/ALP/Greens/Indepnance etc are any more or less corrupt then one and other
If you look at state ALP in Victoria they are the most corrupt government in the history of Australia….
The last LNP government was also corrupt but i find it amazing how Albo and his nation ICCA talk has dissapeared now he is in power….if youre too much of a smooth brain to not realise you are just being sold a lie then im sorry that it is up to you
If you think the current government and minimum wage increases has significantly contributed to our current inflation, I've got a bridge to sell you.
Quantitative easing (money printer go brrrr) along with the previous government's poor management of JobKeeper and other projects, on top of the current world economic situation is what's let us here. Yeah, some of the current government's policies may be contributing, but that's like saying some numpty throwing logs into a house that is completely on fire is contributing…
Quantitative easing (money printer go brrrr) along with the previous government's poor management of JobKeeper and other projects, on top of the current world economic situation is what's let us here. Yeah, some of the current government's policies may be contributing, but that's like saying some numpty throwing logs into a house that is completely on fire is contributing…
i agree this government also supported those policies - people need to learn what biparitsen support means
the last Government was junk but its been a year and honestly speaking i think this government is worse
@Trying2SaveABuck: The opposition agreed to giving people free money because it would have looked absolutely terrible and caused them massive amounts of harm if they didn't.
Don't go bringing common sense into a political gun fight buddy.
they should of upped interest
they should have* upped interest
they should've upped interest
The tax cuts put in please by the libs and the mammoth handouts through COVID to big corporations have completely ruined us. You are right, the LNP should be ashamed of themselves.
Remember that Scott Morrison put the Low-(est piece of sh!t in the country) in that job. The Liberals are indifferent to the worst suffering of families, middle-to-low income earners, and they were the ones to pull the trigger on rate hikes the very day they lost the federal election.
Labor's crime is not indifference to people suffering, but economic incompetence — Labor has a long history of this and Chalmers mindlessly thinks that if you hand the reins to someone else to manage your job, they will do a good job or at least take all the blame when it blows up horrifically.
Now that we're headed for the precipice of Recession, the next election will serve Labor as a wake up to their mistakes, until they shortly forget since they have a goldfish memory.
Increase mandatory super so by the time someone in my age bracket can access it (probably 70 by then) i can use it?. I have bills to pay now, not in 40+ years.
Increase mandatory super so by the time someone in my age bracket can access it (probably 70 by then) i can use it?. I have bills to pay now, not in 40+ years.
would you rather the money go to banks or to your retirement….. becuz the current system it is doing the former
Inflation is a lagging indicator (refer to bit on CPI) - it doesn't become apparent until it hits so they react to it after the fact. Which is why you're seeing the chain of events you're seeing now.
Temp increase to super would be paid by employers though - not a bad idea for slowing business spend I guess. I was actually thinking a temporary tax increase to reclaim some of the covid spending and bring down the deficit.
I thought the decision not to raise interest last month was a cowardly one. They're just prolonging the pain.
Agreed 100%
Where is the logic to increase RBA cash rates by 0.5% when they are around 1% and then reduce the increase to 0.25% when they are around 3.5% ???
The RBA should have left thier foot on the accelerator with 0.5% increases all the way to at least 3% then upped the rate of increase to 0.75% in order to preserve "the effect" or medicine. Any pause should not have been considered before 4.5% given inflation is remaining firm at 7%.
Furthermore considering the RBA paused last month, gives weight to the fact this month's increase should have been 0.5% just to catch up on last months pause.
The RBA are too scared to act appropriately for fear of the political consequences.
Whilst the Federal Labor Govt goes on a huge spending spree with all thier additional tax revenue, rather than paying down our enornous debt, the RBA is left to do all the heavy lifting and cop the backlash as well.
Dr Philip Lowe's tenure is up later this year and he obviously wants to be reinstated again.
Meanwhile the Australian public is left to pay the price for gross mismanagement and incompetence both by the RBA and all the Federal and State Governments, no matter if Liberal or Labor
Yeah fk the poor we should of decreased min wage to negative values
Edit: *should of
Yes. A lot of people do not realise that interest rates need to be adjusted otherwise inflation will go unchecked. Interest rates must finely be balanced to keep the economy going smoothly.
Ideally you want to be in the middle somewhere, but as external factors push economy either way, you want to be balanced. Imagine if we go into a recession, but inflation is insanely high too. Bad combo
Indeed - the RBA aren't just making this stuff up. They are responding to what reports say regarding what inflation is doing.
They are just interpreting what needs to be done.
The problem is not what they are doing now, the thing that started all this is because in unprecedented times that would have been very hard to predict (due to the covid pandemic which could have trashed the economy more than it did here), they copied other central banks (such as US fed reserve) and assumed the inflation the reports were showing was a transitory / temporary result of supply chain interruptions, and that it wasn't resulting in real wage growth (remembering some people in hospitality/tourism were cut back significantly, skewing numbers), so made the infamous announcement that none of the signs were showing a rise until next year (2024).
Add to that the Ukraine conflict and associated energy cost ripple through supply chains, the amount of qualitative easing / printing of money done by globally by politicians separate to the RBA to offset the damage of the pandemic, too much in some cases, (done in the name of the economy and easing the cost of living, ironically), and all of a sudden it became apparent inflation wasn't going away through a mere normalisation of supply chains, it became apparent there was a longer term de-valuing of money and off the back end there was a lot of catching up to do including in workload = higher wages and costs to pay people to get things done…
Accordingly, the rates adjustments had to be done quickly to catch up for the delay. It's historically still low, younger people are trying to lynch them who haven't seen bad times before and real inflation rates, older people who are both more financially secure plus have seen higher rates before as the norm are saying settle down whipper snapper, this isn't as bad as it could be, cycles happens, enjoy the life lesson.
TLDR,
RBA didn't cause (1) pandemic; (2) Ukraine conflict / energy crises; (3) QE money printing (blame politicians), (4) big spending (blame us);…So they didn't cause inflation, they were late to raise rates given its hard to determine unprecedented impact of (1)-(3) so copied other central banks thinking it was 'transitory' (= bad speech back then / no crystal ball), so are in catch-up mode. Younger people = boo hoo / lynch Lowe; Older people = it happens/not bad yet/"back in my day"
You are too kind. The RBA responded to lockdowns by lowering the cash rate to basically zero - encouraging more demand when the economy was slowed from the supply side.
This is not sound economic theory, this is the typical crony capitalism 'do everything to prop up the building industry' rhetoric that doesn't consider what happens to the poor.
Now labor is trying to provide some relief to the poor - after the inflation is already here - and we have this thread full of people blaming 'government money printing' for inflation. The ALP didn't cause real estate to increase 30% in 2 years, and neither did the LNP, it's 100% on the RBA
Perhaps.
Thinking about it further, I do have to amend one thing as I wasn't clear in how I described it, the RBA are responsible for the Qualitative Easing programme, what the politicians were responsible for was borrowing huge amounts of money to fund pandemic relief measures, such as $90 billion for Jobkeeper, (i.e. issuing the vast volume of government bonds that the RBA was buying) - so collectively the RBA and politicians were responsible (back then more so then now), so I guess some may question the RBA's independence or whether they were responding to what the politicians wanted to do, so as to appear to be propping up the country during the pandemic / recession by supporting the politicians' free money programme which devalued cash overall…. (which the govt kind of had to do because they effectively legislated/regulated lots of people out of work through restrictions and lockdowns, but went too far).
There is a good reason the building industry must be supported, as it is a key way to inject new cash into the system and integral to avoiding an economic collapse. People borrow loans to build new buildings, the banking system injects that cash through the loan funds and grows the balance sheets.
However, indeed what we ended up with was a two-speed economy, with tourism / hospitality workers on the brink, and tradies and builders laughing all the way to the bank as they got the benefit of high workload plus low levels of pandemic restrictions vs other industries.
I guess what I am trying to say is all the negativity towards what the RBA is doing now is not the main problem, it was actions taken under duress without 20/20 hindsight during the pandemic in the past that was more the problem, and they largely just copied what the rest of the world was doing in larger economies - but we were hit less than some of them. It was an overreaction as everyone thought it would be worse so the reversal has had to be swift.
So my comments weren't aimed at "did" they do a good job, it was aimed at everyone that seems to think they shouldn't be increasing rates now… they should, and never should have lowered them as much as they did, but hindsight is 20/20.
TLDR: "Did they do a good job in the past?" = no, "Are they doing a good job? = yes / better than they did previously. (However many seem to think the opposite and had no issues with them lowering rates before!).
A lot of people do not realise that interest rates need to be adjusted otherwise inflation will go unchecked.
A lot of people have no idea about what is causing the inflation.
It is true. I did not understand all this stuff until a few years ago either. Not sure if I completely do now either ;)
Raising isn't rates is having minimal impact to inflation because a lot of it is due to increased prices of food and utilities.
The price of food and utilities is not going to drop because the Reserve Bank decide to increase interest rates.
All it does is cause more hardship for people paying off mortgages.
@Boioioioi: Climate change. Floods and fires have decimated farm production.
Oil cartels reducing production. All farm equipment and logistics pass the cost on of higher fuel.
We have all the coal and gas we need for energy right here but we have corrupt global agreements that charge us global rates. Tasmania is 100% renewable on energy and is still getting 40% price increases.
If you look at Japan you can see they haven't touched their interest rates and nothing has changed.
The RBA is full of it, unfortunately a lot of people just parrot what they hear.
@jaimex2: Japan has a savings problem, majority of countries who have inflation under control are countries that do not spend and save a higher portion of income. We are talking about household saving ratio. They even had negative interest rate at points to try and get them to spend, which they didnt even bother doing.
Japanese household save roughly 25% of their income, australia is less than 10%. Thus less spending = less inflation. Same as countries like South korea, Luxemburg etc.
The issues with this, is the more they save, the less the economy grows.
@jaimex2: You know the trend for agricultural production has risen for decades, even in the last big drought?
Short term impacts of floods at certain times if the year do not change that overall long run picture.
If you're struggling to pay off your mortgage, you're supposed to downsize or sell.
Why should you sell? Just because Albo can't manage the economy…
What if you are struggling to pay for food, electricity, gas, fuel ?
These items alone have increase way more than the official inflation rate.
Lots of people are on minimum wage and rent.
@jv: It was in a shit state (think 2019/2020) before he took over, just nobody realized it fully yet as indicators like CPI are lagging. That's sort of time scale you need to think in.
Some reasons why prices have gone up alongside declining demand is that supply issues haven't entirely subsided yet and there's still inflated demand following 2020 - 2022 (due to factors like QE, increased savings and govt propping up demand at the time) so they cancel each other out. Furthermore, decline of AUD/USD YTD has made imports more costly - it's been dropping since 2011.
@Serapis: Then why do they re-evaluate how much to raise the rate by every month? Why did they not raise it at all the other month? Why only 0.15% one month, 0.25% the next?
They treat it like it's going to take an immediate effect while knowing full well that it won't.
@MrFunSocks: Possibly taking on some pressure of the politicians, who are mostly lacking expertise on economics or just more worried about their constituents + the impact takes time to appear in their modeling so they're trying to adjust predictions according to lagging data: See Philip Lowe from 6:23 for the explanation here.
The people who normally think these impacts will be immediate are misinformed media or columnists.
@jv: My thoughts exactly. I can handle increasing rates because my loans are small enough for it to not matter. What I can't is if the RBA cause a recession themselves.
From the beginning my question has been how rates are going to reduce the costs or rises for those essentials, and all I see is Lowe looking like he's on some power trip or so far gone turning into a politician in reputation damage control mode due to those words years ago.
I say this is as someone who doesn't have much sympathy for people who calculated their repayments on unrealistically low rates either.
who doesn't have much sympathy for people who calculated their repayments on unrealistically low rates either.
People like Dan who are sending Vic bankrupt now…
The worst part is, it's our money, not his, so he doesn't care…
He still gets his half a million per year and will retire with millions in super paid for by the Vic taxpayers who will be left to pay for this mess.
@jv: That's where you are wrong. Raising rates reducing the spending capacity of anyone with a loan and increases the saving incentive for anyone with cash.
People with mortgages might
1. find grocery stores that are cheaper to where they usually shop, that puts pressure on competitors.
2. Buy cheaper food items increasing reducing demand for more expensive items and relieving supply constraints on them.
3. Reduce air con of heating removing demand on energy resources.
4. Drive less removing demand on fuel.
5. Cut back on entertainment etc.
All these help to reduce demand and increase supply.
It takes a while but it will happen some will get hurt most will pull through just fine.
In some areas it seems to not have hit yet as renos, new cars, dining and overseas trips still seem the norm still.
Problem is they also expect inflation to just drop immediately, which isn't how it works. It's supposed to take effect over the long term (think years).
Estimates of inflation back to 4% by the end of this year is ludricous
How we wish!
I don't see that as possible as RBA's last target date to get back in their target range ~4 weeks ago was by mid 2025 at the earliest.
Be careful of what people wish for. RBA is now more embolden and united after the abuse they get and Mark Bouris' rant today (he should have known better) will make next month's 0.25% increase a surety.