Stephen Halmarick

So we think that they will move back towards that 25 basis point move for August and September and November, which will take the cash rate to 2.1%.

There is a risk that they might have to do another 50 basis points in August if the June quarter inflation number drops.

which we get on the 27th of July, is higher than expected, they may be thinking that they might do another 50 basis points in August.

But the big mortgage refinancing challenge that is coming in 2023 is really the reason why we think the Reserve Bank won't need to increase the cash rate to 2.5% or indeed the 3.5% that's priced into markets because essentially financial conditions, many Australian households

will continue to tighten through 2023 without the Reserve Bank raising the cash rate any further because there's going to be a pretty large share of the Australian housing market or those with mortgages having to refinance off those super low fixed rates that they were able to get in late 2020, early 21 and refinance at what's now going to be considerably higher fixed rate or variable rates through 2023.

Yeah, that's exactly right.

So there'll be a large number of Australians with a mortgage who will now have to be increasing their monthly repayments to service their home loan, either now or in the months ahead as interest rates continue to rise further.

And as I mentioned, if you're spending more money servicing your mortgage, then you've got less money on everything else, particularly in an environment where real wages growth is negative, that is inflation is higher than wages growth.

Well, the thing with inflation, it means ongoing price rises.

So if prices go up and then they stop rising, that's no longer inflation.

But we've seen a lot of volatility in some of the key commodity markets, particularly oil, of course, with the price of petrol rising.

A large part of that is due to the Russian invasion of Ukraine and particularly the sanctions on Russia.

We've seen disruptions to the global supply chain network as China is running this zero COVID policy and shutting down very large cities like Shanghai.

So there's factors affecting inflation well beyond what monetary policy can affect.

And here in Australia, I might add that the floods, including the most recent floods around Sydney, are going to, again, dramatically affect the price of food.

So lots of things that are outside the control of the Reserve Bank, which means the inflation number, as you said, is very difficult to forecast at this point in time.

Oh, yes, there certainly will be some households that are going to find these higher interest rates very difficult to manage.

In terms of raising interest rates, the Reserve Bank wants to get demand down.

And that's one of the ways that they can do it through, unfortunately, putting some extra pressure on household balance sheets or household budgets.

So it's going to be important for those people in that particular situation.