The RBA hikes, by 25bps, continuing the recent run of a dovish (at the margin) stance, having dropped down to 25 from 50 at the last meeting.

The RBA is simply aware that there’s a lot of tightening already in train, and that Australian households, whilst showing good resilience at the moment, are nonetheless quite indebted, and with house prices falling, doesn’t want to inadvertently overtighten, setting us up for US 2006 housing style correction.

Equities had moved up in anticipation of today’s move (i.e. stocks do well when tightening is to be less than previously expected) although noting the fall in the AUD and the decline in the 10 year would suggest that a more hawkish tilt was expected.

Short run macro market moves are notoriously fickle, and can simply represent traders getting caught marginally offside.

For us, the RBA’s move is sensible. There are a lot of economists calling for harder/higher/tighter rates, and we think gradualism is the more prudent course to chart, particularly if you believe that supply side factors will gradually improve (on their own) over time, which is what the anecdotal data seem to suggest.

To argue the contra case, you can see where the “it’s not enough” hawks are coming from. Strike off any number between 2% and 6% from the RBA rate, and compare to the real rate. Hence the “behind the curve” crowd.


I am very sympathetic to those views, equally, I think overlevered homeowners are in for a world of hurt.

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