Aussie economy full of hot air

It’s the question everyone’s asking but no one knows the answer to – when will the RBA make a cash rate cut? 

Pretty much every expert in the finance game confidently claims we won’t see another rise anytime soon, yet most shy away from pinning down a date on rates moving in the opposite direction. 

My good mate Paul Hixon, a senior mortgage broker at Loan Market, tells me there’s a good reason for that. 

“Different forces pull and push the economy in various ways,” Paul says.

“In basic terms, the RBA has interest rates set to a brake system, where the ideal position is inflation between 2 and 3 per cent. The brakes have been slammed down and as to how quickly they’ll be released, it’s hard to tell. That’s linked to international factors like the political situation in America or the property recession in China, with so much going on over there that can influence us here. Yes, the brakes should be coming off but we have to watch the market to see what and how it unfolds.” 

Paul says if accommodation and housing is a driving factor, and we all know there’s a crisis there in regards to availability, then the RBA may need to be brave in removing that force from its inflation equation. Housing stress may calm down if interest rates are released, triggering construction rates etc to potentially ease that portion of what was originally included in the  inflationary figure. 

I pose the question to him, why is the RBA so timid in its rhetoric? Has the board been burnt by Lowe backlash stemming from the former governor’s failed forecast in 2021?

“If they start saying we’re going to bring down interest rates and the market goes, ‘Oh, good let’s crack on now’, then it almost drives the economy,” Paul says.

“The RBA has to let the balloon down without popping it. A controlled, slow release while watching multiple pieces in a massive puzzle. If they get it wrong, everything falls over.”

As for a hike, Paul reckons it should be off the table for the foreseeable future but, again, the rhetoric is a reminder that we can’t start the party just yet as the RBA uses both words and tools to let the air out of the balloon ever so slowly. 

I hope you enjoyed the read.

Matt Lancashire