This RBA Rate Hike Will Drive Australia Precipitously into Recession.

The RBA hiked rates against most expectations today.

It is interesting that RBA acknowledged consumer spending is moderating, there is a slowing, yet chose to still raise rates again?

Even though nothing has changed from their previous meeting. Inflation was stubbornly high then.

The question has to be asked, what was that pause all about? Was it more about the Independent Review and concerns felt there, than it was about inflation expectations by the Governor and Board?

The RBA remains a very political animal.

There is no doubt this rate hike, with the accompanying commentary suggesting more rate hikes are coming, will take the wind completely out of the sails off the momentary stabilisation in the property market. It will also most most certainly tip Australia well into recession.

Certainly the inflation issue remains a serious problem, and knowing the RBA I have always forecast a higher end rate nearer 4.5% to 5.5%. That looks like where we are now headed.

However, given the previous pause, it did appear the RBA had recognised that being so late to recognise rocketing inflation in the first place, there was already significant pain for consumers and businesses from the price increases alone, and therefore raising rates risked a too severe dampening of activity. One that would precipitate a full blown Recession.

Expect Australia to experience that full blown recession in the second half of this year. As the RBA continues to blunder its way forward.

Clifford BennettACY 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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