Hedge Clippings | Friday, 09 September 2022
This week Dr. Philip Lowe copped a fair amount of flak following the RBA's fully anticipated decision to raise rates by a further 0.50% taking the rate to 2.35%. He also signalled further upward movements by stating he was "committed to doing what is necessary" to knock inflation on the head.
That's now five rate rises in five months. There's likely to be a further 2 or 3 increases at least, so even if they're not all 0.5%, or don't come at monthly intervals, the official cash rate is likely to be over 3% by early 2023, if not by Christmas this year. Therein lies the source of the flak: It wasn't so long ago that his "advice" was that rates wouldn't start rising until 2024.
It is probably fair to say it will be a while before Lowe looks that far over the horizon again, as the inevitable political opportunists - whinger in chief of everything, Greens leader Adam Bandt leading the charge - called for his resignation. The problem is (or was) that global central banks also underestimated the threat of inflation because much of the cause behind it wasn't there.
When Dr Lowe made his "steady as she goes until 2024" prediction, Putin hadn't indicated he was going to invade Ukraine and create an energy crisis. China hadn't gone into lockdown and created a supply chain crisis. Wages hadn't spiked upwards (and still haven't) to the same degree as inflation.
So Australia is in the same boat as the US, as well as the UK, or Europe, where interest rates were increased by 0.75% overnight, once again with the message that taming inflation (where it is significantly higher than in Australia) is a greater priority than the risk of a recession.
It is well understood that monetary policy and raising or lowering interest rates is a blunt instrument - and the only one - that the RBA has to counter the multiple inputs that create inflation, and affect the economy. As a result, it is not surprising that the RBA governor rejected calls for his resignation, and pointed to both the difficulties of forecasting in the time of Covid, the strength of the economy, and full employment.
That won't stop Adam Bandt whinging, but following the Queen's death overnight he's wasted no time in changing his angle of attack to target the monarchy. There'll be plenty of time for that debate in due course, but a little bit of respect might have been the order of the day.
Changing tack - Hedge Clippings used to feature a weekly section under the title of "Now For Something Completely Different" to finish the week on a positive note. Given there is now so much content on both the internet and social media, we have let that slide, but every so often an item comes along which we find either amusing or in this case uplifting.
This video of a street singer performing outside London's Covent Garden fits the bill, when he's joined by an actual stage star of Phantom of the Opera, Dutch Soprano Celinde Schoenmaker, for an impromptu duet. Enjoy!
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