RBA Extremely Hawkish

The Reserve Bank of Australia will be hiking rates for many months to come.

That would at least seem to be the outlook from Martin Place, given todays hike and accompanying statement.

Despite a lot of caring, read dovish, preamble discussion in the statement, when it came right down to it at the end of the statement, their sentiment was clear.

Not only does the RBA see achieving a soft-landing for the economy as a ’narrow’ possibility, it foresees significant monetary tightening over coming months. Plural.

The RBA highlighted that while global inflation is dropping and the economic outlook softening, it is important to curtail inflation as it already exists. Before expectations of high inflation become ‘anchored’. They are saying it is vital to get inflation back down quickly toward 3%, before economic participants become use to the idea of it remaining high. With headline inflation at 7.8%, and core inflation at an astounding 6.9%, monetary policy must necessarily be tightened further.

In fact, the exact wording, “The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.“ This could not be any more proactively hawkish.

Unlike the Federal Reserve Chairman, who spoke of a couple of hikes to come, the RBA is stating they expect rate hikes over several more months.

In central bank speak, it does not get any clearer or a stronger signal than this. The Board went on to say, "The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

This all suggests to this writer, that the RBA is internally very much aware that they are still very much behind there curve. In fact, they probably slowed to 25 point hikes far too early?

The Australian dollar will be granted a temporary reprove on the day. The new trend remaining lower however.

While Stocks can be expected to remain exposed to these building headwinds of ever higher interest rates for several more months.

On-going Property correction and 'Australia’s Surprise’ Recession confirmed.

Clifford Bennett
ACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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