00:02Over the last month, we have seen all of these upside risks materialize for Australia.
00:06We have seen the trims mean all the core inflation numbers for us stuck at 3.6%.
00:12It's been stuck at this level for around three months now.
00:15And we do expect that tomorrow's inflation number will continue to be stuck at this level.
00:20Again, remember that the RBA's target for inflation is 2.5%.
00:25So we're just way, way, really far from it without making any progress despite all the three rate hikes that
00:31we have had this year.
00:33In addition, headline inflation, which is a bit volatile, but is impacted by fuel price and fuel price hikes and
00:41price surcharges from businesses,
00:43we expect it to go up to 4.1% in the August month.
00:49So basically, everything is just pointing to the fact that the RBA has to contain inflation further.
00:54I know that the Reserve Bank has a dual mandate, which is full employment as well.
00:59But on that side of the equation, I don't think that the RBA is worried too much right now.
01:04Yes, we have had a bit of a small uptick in unemployment rate to 4.6%.
01:09But jobs growth as well as the employment to population ratio in Australia remains very, very high.
01:16So overall, when you balance out those two dual mandates from the central bank, then the RBA just has no
01:23other option but to high rates further.
01:25Do you have concerns about what another rate hike could mean for the economy?
01:30Yes, I mean, the economy is actually starting off from a pretty strong point.
01:35If you look at GDP growth over the last year, it's at 2.1%.
01:39So that's actually quite high versus what the RBA thinks it should be.
01:44I think the RBA thinks that a more balanced economy at our level of productivity should be closer to around
01:502%.
01:51At the same time, I do think that the extra rate high, taking cash rate to an almost 15-year
01:57high,
01:57will definitely dampen households' budget further.
02:00As we have seen in the previous few minutes, on an average budget, every single household would pay around $110
02:06with every rate hike.
02:09Cumulatively, this would add about $440 to the monthly mortgage bill.
02:13And this is a double whammy.
02:15In addition to the rise in the petrol bill, if you have a car in Australia, on average,
02:20you probably would be paying around $90, $94 a month compared to the bill that you paid back in February.
02:28So all in all, you're paying an extra around $540 a month with the double whammy of rate highs and
02:35fuel bill.
02:36So what does that do to consumption, which is basically half of our GDP?
02:40That would probably dampen consumption a little bit further.
02:43That would dampen sentiment a bit further.
02:45And that probably would translate to both retail sales results, household spending results,
02:50as well as the overall GDP results going into the end of the year as well.
02:56How significant will it be if this hike comes, that it would be the highest rate in 15 years?
03:03I think it really tells us that we are in a different world now.
03:07We are no longer in the world between 2000 and before COVID,
03:11when we have globalisation, falling inflation, and rates kept coming down.
03:15And the impact of that was that asset prices, including property prices, kept going up.
03:20Now we are in a world where geopolitical risks are high.
03:24The RBA has a much more narrow path to navigate the mandate of containing inflation and as well as full
03:32employment.
03:33They probably have to prioritise one of those two at any time, at any given time,
03:39to actually deliver the best outcomes for Australians.
03:42I think it does tell us that, you know, they do want to have to contain the economy a little
03:48bit right now.
03:49I know that some households are already not feeling good at the moment within the double whammy of rates and
03:54fuel.
03:55But again, this is the hard path that the RBA really has to pick.
03:59And I think another thing that it tells us is that I think rate cuts are probably quite far away,
04:04at least a year away.
04:05So, most households probably have to get used to the fact that we are just going to have higher rates
04:11in the next decade compared to the last decade.
04:14And just briefly, before I let you go, the prospect of another rate hike in November, there is talk about
04:19it.
04:20What are your thoughts on that?
04:21To be honest, I think it's still around 50-50 at the moment.
04:25Right now, if you look at money markets, which is basically the financial markets that do predictions on rate hikes,
04:31they are pricing in almost three more rate hikes from here, including today's one.
04:35But I think that seems a bit too aggressive for now because by the time of three months from now,
04:42in the November meeting,
04:44data might actually sell a little bit.
04:46As we have mentioned, this next rate hike will be quite significant for the household budgets.
04:51So, even though we haven't seen it right now, given that we have had pretty good employment results,
04:56people can still get jobs, people can still afford their bills.
04:59But the stress would actually increase quite significantly from here.
05:03And we are going to start to see some slowing in economic data from now until November,
05:08which might actually allow the RBA to pause in the November meeting.
05:13So right now, I would say the probability is around 50% of another rate hike in November.
