Last week’s decision to increase the cash rate by 25 basis points felt like a sign post to the turning of the economic cycle.
After two years of government and central bank effort to carry the economy through the pandemic and stimulate recovery, the challenge is now to foster growth without allowing inflation to break out.
Just six weeks ago the Federal budget forecast CPI growth of just 3% for coming financial year, a far cry from the reality of a 2.1% increase in the March quarter alone.
The move in official interest rates is welcome – it is after all a recognition that emergency monetary settings are no longer required.
It’s also not unexpected (despite the now sharp change in the RBA’s own expectation setting). Our ANZ/Property Council survey has shown that our members have been expecting the Reserve Bank to lift rates for some time, with confidence within the sector remaining high.
And it is also true that most mortgage holders are well placed to withstand a series of interest rate rises.
However it has been a long time since Australians experienced an upwards interest rate cycle and it would be surprising if this did not spill over into sentiment in some way.
Economists will also be watching the inflation tug-of-war closely, with inflationary drivers primarily coming from supply constraints and disruptions, not from an overheated economy.
With the election only eleven days away, it’s hard to escape the conclusion that the country will need a strong productivity agenda from whoever forms the next government as well as quick action on migration settings to ease the skills crisis.
