Mark Bouris and economist Stephen Koukoulas return for their monthly discussion before the RBA meets on Tuesday, the 3rd of October, to decide whether or not to keep the official cash rate on hold again at 4.10%.
Stephen Koukoulas is a highly regarded economist who brings his knowledge, wit and common sense approach to the analysis of Australia’s current economy and financial markets.
In this episode of Property Insights, Mark Bouris and Kouky discuss the pros and cons of another interest rate hike.
Key Takeaways:
- The “two speed economy” is really taking off. Mark and Kouky discuss how the cash rate changes have further benefited those over 50, due to rising house prices and higher savings rates, but increasingly impacted a significant and younger part of our population struggling with declining real wages. “Different interest rates are clearly impacting different parts of the economy differently.”
- Mark highlights the unfairness in the “one interest rate for the whole country” approach and calls for real conversation between stakeholders. As Kouky puts it “government can, and should, and only occasionally does, manage that unfairness through fiscal policy”.
- “I think the conversation should be had.” Questions are raised about how the CPI (Consumer Price Index or ‘inflation’) is calculated given that we “can’t tackle certain aspects of CPI with interest rates”. Could RBA calculations exclude anything which temporarily boosts inflation (like fuel prices), or items and services unaffected by interest rates?
- Kouky and Mark suggest the potential need for organisations such as the ABS and RBA to update how the analyse and respond to the important data, particularly how inflation is calculated.
- Rates are on hold. While money market analysis suggests a small possibility of a rate hike in the next few months, Mark and Kouky’s analysis indicates the RBA won’t hike this month, regardless of ongoing inflation concerns.
- Any rate drops are still more than 6 months into the future and small. Inflation has to be well and truly in check, and, GDP, labour market, and wages have all got to be weak for a decent period of time, before the RBA will consider lowering rates.
