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The RBA is uncertain since high interest rates aren’t working | Property Insiders [Video]

key takeaways

Key takeaways

High interest rates aren't working because Australia's economy is still strong, job creation is surging, unemployment levels are falling, and the participation rate is at near record highs.

The RBA said that inflation is easing but has been doing so more slowly than previously expected. It expects that it will be some time before inflation is sustainably in the target range.

The RBA is uncertain about the lag for monetary policy because 48% of people were on fixed-rate loans after the pandemic took interest rates down to very low levels.

The weekend auction markets reported marginally lower clearance rates and fewer listings on Saturday as the quieter winter market now emerges.

The national weekend auction market reported a clearance rate of 68.2%, slightly lower than the previous weekend but still significantly above the same weekend last year.

Well, the Reserve Bank Board meeting for June has come and gone, and the bottom line message from our central bank’s official press release is that it doesn’t quite know what to do.

But they’ve done the right thing by doing nothing!

Interestingly, the official statement from the Reserve Bank used the word “uncertain” eight times.

In today’s Property Insider chat with Dr Andrew Wilson, chief economist of My Housing Market, we unpack the various concerns the RBA has in making their interest rate decision.

High interest rates aren’t working

Despite 13 interest-rate rises commencing in May 2022, Australia’s economy is still strong, in fact, stronger than the RBA would like, and that’s one of the reasons inflation isn’t falling.

The jobless level remains low, job creation is surging, unemployment levels are falling, and the participation rate is at near record highs.

Participation Rates 24 June

At the same time, retail sales are high and remain significantly above pre-Covid levels.

However, this is being assisted by more consumers (due to our migration surge) and inflation pushing up prices.

The latest RBA statement said:

“Inflation is easing but has been doing so more slowly than previously expected and it remains high.

The Board expects that it will be some time yet before inflation is sustainably in the target range.

While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation.

The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain, and the Board is not ruling anything in or out.

The Board will rely upon the data and the evolving assessment of risks.”

Watch this month’s Property Insider video as Dr Andrew Wilson explains how the RBA now seems more uncertain about what is ahead.

Economic commentator Peter Switzer summarised the RBA’s uncertainty in a great article here.

This was his interpretation of the RBA’s statement:

The Board is:

  1. Uncertain about the lag for monetary policy because 48% of people were on fixed-rate loans after the pandemic took interest rates down to very low levels. Historically, only 18% of borrowers were on fixed-rate loans, so when the RBA raised rates, they hurt and worked faster, and the lag was shorter.
  2. Uncertain about the outlook for household spending, with 13 interest rate rises meeting tax cuts that kick off in July.
  3. Uncertain about the Chinese economy that could easily help a rebound in exports and GDP growth.
  4. Uncertain about the overall economic growth outlook, but the Board is certain that the last reading on growth showed the economy was slowing but future readings aren’t clear.
  5. Uncertain about future consumption and saving, as the last National Accounts showed the former was going up a little while the latter was going down, but these could be one-off aberrations. If rate rises are working, consumption should be falling, and savings should rise, hence the uncertainty issue.

Rba Monthly Cash Rate 24 June

Oil prices rising again

Watch this month’s Property Insiders video as Dr Andrew Wilson explains the relationships between oil prices and inflation and how recent increases in world oil prices are a worrying sign for inflation moving forward.

Inflation Tracks Oil Price 24 June

Annual Change In Monthly Oil Price 24 June

Auction results June 22nd: slowing Winter market now generally emerging

Weekend auction markets reported marginally lower clearance rates and fewer listings on Saturday as the quieter winter market now emerges.

Canberra had the strongest auction clearance rate of 79.1%.

Auction clearance results for the other capitals were:- Melbourne - 67.0%; Sydney - 68.7%; Brisbane - 54.2% and Adelaide - 71.8%.

The national weekend auction market reported a clearance rate of 68.2% which was again similar to the 67.2% reported over the previous weekend – but again slightly lower than the 70.3% recorded over the same weekend last year.

National auction numbers were lower over the weekend with 1856 listings versus the previous weekend 2068, but again still significantly above the 1088 listed over the same weekend last year.

Weekend auction markets continue to report positive results generally although activity is waning as the typically slower winter market emerges which will be exacerbated over coming weeks as mid-year school holidays commence.

Auction Results 22 June

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
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