AMP capital chief economist, Shane Oliver, has produced the below chart showing how the Reserve Bank of Australia’s (RBA) current monetary tightening cycle is the most aggressive in modern history, having just overtaken the 1994 increases:
When one considers that this cycle began with the official cash rate (OCR) at only 0.1%, the current tightening is nothing short of remarkable.
According to Oliver, “this is the ninth consecutive rate hike in a row over ten months totalling 325 basis points and exceeds the 2002-2008 tightening cycle (of 300 basis points over 71 months) making it the biggest tightening cycle since the 1980s”.
“Prior to 1990 the RBA cash rate was not officially announced, and short-term rates were very volatile. In the period January 1988 to November 1989 the overnight cash rate rose from 10.6% to 18.2% but mortgage rates were more regulated then and “only” rose from 13.5% to 17%”.
Once the OCR hike is passed onto mortgage holders, Oliver notes that mortgage rates will rise to their highest level in eleven years:
The next chart plots the RBA’s OCR hikes against other developed nations:
As you can see, the RBA has a way to go before it matches the rate hikes implemented by the US federal Reserve, the Bank of Canada, the Bank of England, or the RBNZ.
The key difference is that Australian households carry far higher debt loads than those nations.
Floating and short-term fixed rates also dominate here, meaning Australians are more sensitive to interest rate hikes.
