“You’ve got this combination coming at the economy. The bank’s already aggressively increased interest rates, you’ve got a fixed-rate mortgage cliff coming, and you’ve also got quantitative tightening coming through,” he said.
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“It’s just like many Australians who haven’t seen interest rate increases before and are now dealing with it. The Reserve Bank hasn’t had an experience with quantitative tightening and how that will affect the economy.”
Both the Treasury and the Reserve Bank are expecting the economy to slow sharply through 2023 as higher interest rates and inflation curb household spending.
Economic growth reached 5.9 per cent in the 12 months to the end of September. By the end of next year, growth is forecast to slow to around 1.4 per cent.
There are already signs the RBA’s eight consecutive interest rate rises are starting to affect the broader economy. Spending data collated by the ANZ through its network of EFTPOS and credit cards show expenditure by consumers between November 20 and December 18 not keeping up with inflation.
Independent economist Stephen Koukoulas said just as the RBA’s quantitative easing program had supported the economy through the pandemic, quantitative tightening would contribute to a slower economy.
“It will have a contractionary effect on the economy which will itself contribute to a lower inflation rate and a slowdown in trend growth, and that will help the bank achieve its inflation objectives,” he said.
RBA governor Philip Lowe has acknowledged quantitative easing will have an impact on the broader economy.Credit:Alex Ellinghausen
In May, governor Philip Lowe noted that the cheap cash offered to the nation’s banks would start to be repaid in 2023 and 2024.
“This contraction of our balance sheet will contribute to some tightening of financial conditions in Australia and so assist with the return of inflation to target,” he said.
Financial markets put the chance of another interest rate rise at the bank’s February meeting at 50-50. The same markets expect the cash rate to peak at 3.8 per cent by August.
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