RBA's mistakes will lead to rates falling sooner

The RBA (or as I like to call it, the Reverse Bank ) is starting to destroy the Australian economy. We’re now getting more and more data confirming the huge policy mistake from the November rate hike. That decision in hindsight was totally unnecessary.

Since November’s hike, we’re seen 50,000 jobs lost and a whopping 2.7% slump in retail sales. To put that in perspective, we haven’t seen retail sales falling this bad since the pandemic.

To make matters worse, Australia’s inflation rate has continued to trend lower. The December monthly indicator is now at a seasonally adjust annual rate of 3.4%. The RBA target band range is 2-3%, so we are now almost completely back to normal.

Inflation is dying and will be dead in a few months.

Yet the impact of the November hike is still being felt and will ultimately push the RBA to cut sooner than expected. I previously thought we would see cuts in late 2024, but that could be brought forward if data doesn’t improve quickly.

We’ve seen this from the RBA many times. They tend to always over-react at the top and bottom. I have no doubt that they will pat themselves on the back in a couple of months for bringing inflation back, before cutting. But this isn’t good enough, as it will mean many people will lose their jobs when they didn’t have to.

The RBA is cleaning up the mess it created.

With record high migration, low supply and the potential of falling rates, I can already start seeing the residential property market move higher. Sydney and Melbourne will be the main benefactors.

More analysis in the video attached.

Peter Esho is an economist and Founder of Esho Group. He has 20 years of experience in investments and markets.