Unions Urge Pause, Economists Say Hikes Needed To Contain Inflation

The RBA is widely expected to hike rates a further 25bp today to 3.6%, a cumulative 350bp of tightening since the cycle began in May (see MNI RBA Preview - March 2023). Ahead of the announcement, unions and housing associations have been calling for the central bank to pause but Westpac chief economist Evans has warned that inflation still needs to be contained.

• Evans spoke to Westpac customers on Monday and said that this was the RBA’s “now or never” opportunity to rein in inflation. “They (the RBA) still realise that the bigger cost is to be caught sleeping at the wheel and let inflation get away … And then you’ll have to go a lot harder as we had to do in the 90s. I think they will err on the side of making sure, that maybe they will overreach.” (The Australian)
• Lenders have said that up to 15% of variable rate borrowers will be driven into negative spare cash flow. Evans noted that “It’s going to be a very tough time … there’s lots of pain out there.” Many households have recently hit the 3% mortgage affordability buffer. (The Australian)
• With the economy slowing and inflation still elevated the RBA’s “narrow path” has become narrower. Independent economist Richardson said “if they underdo it and inflation hangs around you’re going to like that a lot less … because this pain will be stretched out over a longer period of time”. (The Australian)