People's memories are generally quite short-term in focus, with a few exceptions. Virtually none of the talking heads you see today were working during the RBA cycles of 1986 to 1993, nor even pre-2007.
The RBA would raise rates (back when the Australian domestic economy was growing strongly) to slow down the domestic economy. That's something that has not been growing strongly since the year before the Federal Govt changed in 2013.
The RBA tightening monetary policy was a sign that things were going too well and the RBA feared that price pressures would break out due to domestic shortages (hence the RBA's reference to 'underlying inflation') for goods, services, or labour.
That is why over the last decade or so, the only way that domestic growth was achieved was by massively ramping up official & unofficial immigration (people arriving by plane, mainly Q flights but never leaving as their holiday/working visa required). Per capita domestic growth has pretty much flatlined.
This time around the RBA has been forced to tighten due to price pressures from a weak economy. The bulk of Australian economic growth (GDP) has come from Net Exports (both volume growth for mainly iron ore, Alumina, Bauxite, as well as lesser volume growth for some soft commodities, and price increases) and Govt spending. $800 billion in extra debt accounts for a lot of claimed superior economic management.
Why the RBA waited so long to even start raising rates is an interesting question that will NEVER be answered.
If you adjust the March Qtr CPI to take out the oil price increase and compare it to the US CPI also ex-Oil price impact - the difference between Australia and the US becomes quite minimal. The reason being that the impact in the US was much greater as the US domestic price was a fraction of the Australian price. So while the price for E10 in Australia may has increased by 35% since early 2021 - in the US the price has increased by a similar amount but it represented nearly a 100% price increase = a much greater addition to the US CPI as it also forms a slightly greater share of the CPI.
Given the reticence by the RBA to admit the massive egg-on-face mistake of repeatedly stating there would be no interest rate rise until 2024 - Australia is 'far behind the curve' compared with pretty much every other OECD country. Since the 1980s - this is a first for the RBA. They have zero experience in how to operate in this scenario - they can look at the Fed's history where implied political influence delayed the start of rate rises repeatedly (The Greenspan Put for example).
Chances are that Australia faces a minimum of 1.00% in further increases by the December RBA meeting, and quite possibly between 1.50 to 1.75%. Commentary that following the Fed's increase today of 0.50% will be followed by similar, if not greater, increases in following months suggests that if the RBA does not act promptly to start catching up then the AUD will drop against most major currencies (EUR possibly excepted due to Russia/Ukraine & the EU's massive net energy deficit).
If that does happen then we will see a second surge in imported inflation similar to what hit Australia in the mid to late 1980s. The RBA stuffed up managing that period in a big way.
If interested do a search on the J-curve, It is virtually impossible (due to this period being way pre-internet) to find much about what went wrong.
To summarise, mortgage rates went from 12.00% to 17.50%, the 'official' cash rate went to above 18%, the trade balance ended in a massive deficit, inflation went from around 5% to above 9% to 3% after the 'Recession we had to have'.
AT one stage, 'real' interest rates (headline figure less the CPI) were close to 10%. In Australia as of the end of March we had NEGATIVE real interest rates, or - 5%. Historically for an economy that is described as akin to throwing petrol on the fire when standing at the fire's edge.
In NSW thousands of people who were advised by the 'talking heads' to take out NSW Govt guaranteed fixed rate mortgages (at the peak) then defaulted and ceased making any repayments leading to the investors in the bonds issued (with NSW State Govt guarantee) to lose around 20% of their value as the NSW Govt refused to foreclose as the State Election was not far away.
Many industry & private sector super funds, insurance companies (and mutuals such as Colonial Mutual, National Mutual etc) lost tens of millions as a result. Some more prescient fund managers never owned them as we'd discussed the political risk of such an event at a Melbourne Cup day lunch.
More memorably, in 1986, then Treasurer Paul Keating said that Australia risked becoming a third-rate economy – a 'banana republic'.
Back in the 1980's Australia's manufacturing sector was roughly 3x to 4x the size it is today. We didn't import 90%+ of clothing, 99% of vehicles, 95%+ of furniture, 97%+ of tiles etc.
Oddly enough, Qantas began its major fleet replacement over that period. The wheel has turned full circle once again. Hopefully the Qantas companies domiciled in the Cayman Islands or Bermuda will not be the owners again. Mind you, none of the previous financiers, like the AMP, are in a position to help Q this time around in anywhere near the same degree
"May we live in interesting times".
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