That’s the rub the bank faces.
Keep raising rates and there is a broad macroeconomic impact. Don’t lift rates and there is a broad macroeconomic impact.
Home buyers are screaming the loudest as their mortgage repayments go up. In a four-month period, the repayments on an $800,000 loan will have climbed by $770.
But home buyers account for about a third of households. Those sitting in their fully owned homes, the people done over by record-low interest rates for the past two years, are finally enjoying an income flow from their deposits.
CommSec estimates the half percentage point increase on Tuesday, if fully passed on by banks, is worth about $6.4 billion in extra income.
This witches’ brew of issues is one of the reasons why financial markets and some economists believe the RBA will keep raising rates this year and into early 2023 before doing a reverse ferret by the end of next year and delivering rate cuts.
A key concern, not just for the bank but for ordinary working Australians, is the rate of wage growth.
The RBA has pinned its hope on a super-tight jobs market delivering solid increases in wages. In his statement announcing the latest rate rise, Lowe noted that industry surveys and private chats with businesses suggested wages picking up as firms “compete for staff”.
That means the next official wages data – due out on August 17 – has greater than normal importance.
Lowe said the size and timing of future rate rises “will be guided by the incoming data”. If that wages data suggests people’s pay packets aren’t fattening, then the bank may have to hold back on future rate rises.
Tomorrow, and the latest data on the state of the economy, can’t come fast enough for the RBA.
Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.