LEX “How’s the serenity?” mused Darryl Kerrigan, stretching out at the family getaway in Bonnie Doon, in the cult movie, The Castle. It’s tempting to imagine Glenn Stevens, governor of Australia’s Reserve Bank, cracking open a cold beer beside him. While authorities all over the world are agonising over the withdrawal of monetary stimulus, keeping rates at historic lows, Mr Stevens was relaxed enough on Tuesday to raise Australia’s overnight rate to 3.75 per cent from 3.5 – the first time the bank has made three back-to-back rises since it began announcing moves almost 20 years ago.
Australia is undeniably in a sweet spot. Its banks are among the world’s best in capital, credit risk and profitability. Business investment is flat on levels of a year ago, when most other developed economies have seen double-digit percentage falls. Unemployment is falling; inflation is close to target. If there is an obvious weakness, it is with consumers, still carrying household debt of about 175 per cent of income. The series of hikes – adding about A$150 to monthly repayments on a typical A$300,000 home loan – may prompt consumers to trim spending that surged in the first half of the year, buoyed by A$20bn in government handouts. The transmission of policy changes to consumer rates tends to be rapid: at least one bank has already raised its standard variable lending rate by almost double the amount of Tuesday’s official increase. Merry Christmas.
