Okay. Yes. You got us.

The Reserve Bank of Australia and its tricksy governors managed to steal a March on July and give us a surprise June double-or-nothing 50 basis point (bps) rate hike, the second in 12 years, to a 0.85% cash rate.

And what’s good for the goose is good for July, according to most economists who I don’t think really know what’s going on any better than we do.

But Tony Sycamore, who’s out front at City Index as chief market strategist, says the bank is unlikely to chop and change now the new standard has been set.

“Safe to say there is likely a follow up 50bp hike coming in July as the 50bp hike becomes the ‘new normal’ and as the RBA follows the lead of the Fed, the RBNZ and the Bank of Canada.”

To best wrap your mind around the stunning 50bps yank that the patient members of the RBA Board just rained down on the Australian economy, it’s perhaps fitting we return to the RBA’s commentary from the May Board Minutes. It is written in the royal ‘We’, only using ‘Members’ instead. Which on a personal,  grammatical and class-based level, I find even more appalling.

“Members considered three options for the size of the rate increase at the present meeting – raising the cash rate by 15 basis points, 25 basis points or 40 basis points.”

Hmm. Nothing there on 50bps.

“Members agreed that raising the cash rate by 15 basis points was not the preferred option given that policy was very stimulatory and that it was highly probable that further rate rises would be required. A 15 basis point increase would also be inconsistent with the historical practice of changing the cash rate in increments of at least 25 basis points.

“An argument for an increase of 40 basis points could be made given the upside risks to inflation and the current very low level of interest rates. However, members agreed that the preferred option was 25 basis points.

Ah. Okay. Maybe here?

“A move of this size would help signal that the Board was now returning to normal operating procedures after the extraordinary period of the pandemic. Given that the Board meets monthly, it would have the opportunity to review the setting of interest rates again within a relatively short period of time, based on additional information.”

No. Nothing.

I guess one reason for them to throw a 50bps our way would be to try and really tear a hole in consumer confidence.

Hang on, didn’t the ANZ weekly consumer sentiment read this morning show confidence dropped like a goddamn stone last week? Why yes, it did.

To its lowest level since August 2020 as cash-strapped, inflation hit, wage-frozen households really stopped to have a good old worry about how shot their finances are.

ANZ says confidence literally fell out of bed, down 4.1% for the first week of June with all five weird sub-indices registering declines proving in devastating statistical terror that the pessimists among us far outweigh the optimists.

Our annual inflation rate is 5.1%. It makes what’s happening in the US (8.3%) look like a picnic on Mt St Helens or what about the lot next door, our troubled Trans-Tasman neighbours of  New Zealand where 6.9% inflation needs to be put down with Jonah Lomu-style speed and strength. 

So excuse me if I were to suggest it just wouldn’t make sense to be as aggressive as them when considering rate hikes.

You could argue that the RBA have gone totally the song sheet here. What’s the point of reading all those bloody minutes where they’ve been batting on and on about patience and  timing and keeping the powder dry and so on if the plan wasn’t to remain patient at all and to ignore the incoming indicators, and the monitoring economic conditions and not react to whatever incremental changes pop up on a monthly basis?

Sentiment has been weakening – not because a lettuce cost 12 bucks on social media – but because so many people forked out too much for houses where higher mortgage repayments will further squeeze this country’s over-leveraged, heavily-indebted households,

Already under pressure from rapid inflation and still-tepid wages growth, heaps of Aussie households and businesses were encouraged to borrow with the expectations that the RBA wouldn’t tinker with the timeline (and not raise rates, because inflation was obviously transitory) “until 2024 at the earliest”.

So. I guess that’s not all gone to plan.

“Circulez, y a rien à voir!”

Anthony Doyle, head of investment strategy at Firetrail Investments says be calm, Australia.

“In October, the RBA Board guided Australians that there would be no interest rate hikes until 2024. What a difference eight months makes. From interest rates on hold until 2024, to 0.75% worth of hikes in consecutive meetings,” Doyle says, not really adding to my joie de vivre.

“The RBA Board has clearly recognised they are well behind the curve. Interest rates are now being lifted to more normal levels for an economy with 5.1% inflation and 3.9% unemployment rate. The RBA has been slow to recognise the inflation problem in the Australian economy, and in surprising the market today is trying to win back some of its inflation-fighting credibility.

“In the statement, the RBA Governor Philip Lowe highlighted the Australian consumer as a source of uncertainty, highlighting increasing pressure on households’ budgets from higher inflation. Higher mortgage costs won’t help.

Firetrail  now expects interest rates to continue to increase at coming meetings – and they’re purdy regular meets too –  resulting in ‘headwinds for the Australian economy as the credit taps continue to be tightened.’

“At its meeting today, the board decided to increase the cash rate target by 50 basis points to 85 basis points. It also increased the interest rate on exchange settlement balances by 50 basis points to 75 basis points.

“Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected. Global factors, including COVID-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation. But domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market contributing to the upward pressure on prices. The floods earlier this year have also affected some prices.

“Inflation is expected to increase further, but then decline back towards the 2 per cent to 3 per cent range next year. Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago. As the global supply side problems are resolved and commodity prices stabilise, even if at a high level, inflation is expected to moderate. Today’s increase in interest rates will assist with the return of inflation to target over time.”