The RBA has deceived the Australian public

We have seen the number of dwelling approvals fall by 17.2% in July to 13,595 units, the second biggest monthly percentage decline since December 2017 and approvals are down a whopping 25.9% on this time last year. While approvals for private sector houses did rise by 0.7% in July, approvals for private sector apartments (i.e., dwellings excluding houses) fell by 43.5% to 3,439 units the lowest level since January 2012.

In September, Core Logic reported that house prices were “falling at their fastest rate since the early 1980’s recession and the rising interest rates could see up to 30% wiped off property values.

So, is it any wonder when we look at what Australians have faced this year off the back of a number of tough years starting with devastating bushfires, a global pandemic and multiple freak weather incidents on the East Coast that the ANZ-Roy Morgan consumer confidence index has fallen to a mere 85 points (the long-run average since 1990 is 112.2 points)?

Right now, almost 40% of Australians hold mortgages with ultra-low fixed rates that could vanish as early as 2023, making the share of borrowers facing a debt servicing ratio greater than 30% and that the common threshold for high repayment burdens would almost double from 10% to 20%.

In simple terms a big portion of the household sector is heavily vulnerable to these rate rises and hundreds of thousands of Australians like younger families and those between their late 20s ad early 40s who entered the market in the past couple of years will suffer and so will the broader economy, when they are forced to reduce their spending to service their repayments or worse foreclose on their mortgage.

Many Australians feel they have been misled by the RBA, and top economists such as AMP’s Capital Chief Economist Shane Oliver says “2024 was a long time away to keep interest rates at [near] zero. We didn’t really believe that (would play out in reality). And I think a few other economists out there didn’t believe them, either. But the problem is that they were taken seriously by many in the community.”

He has gone further to say that while the Reserve Bank Governor Phillip Lowe might now attempt to defend their forecast wasn’t calendar-based, what actually matters was the message the Australian people heard. “That’s what was relayed in the media, and I guess there would have been a lot of people who took that seriously,” Dr Oliver stated. He also concurred that he can’t blame Australians for listening to the Reserve Bank, hearing their promise of interest rates staying near zero and making major financial decisions based on that communication and messaging.

There is no doubt that the RBA has a major communications problem and need to really assess how they communicate their strategies and plans with the Australian media and wider community. Steven Hamilton, Assistant Professor of Economics at The George Washington University and visiting fellow at the Crawford School at the Australian National University recently said, “I think the Reserve Bank needs to take a hard look at its communication in future and properly communicate the full context of its forecasts and the risks around it.”

When it comes to the RBA and their forecasting there need to be some accountability, the Treasurer’s recent announcement of a review of the RBA and suggested recommendations of introducing a broader range of community representation on their board and possibly representatives from labour markets and unions, is a positive step forward.

However, I firmly believe that if the RBA does indeed decide next year, they need to stimulate the market and reduce the cash rate, this proves that they have absolutely no strategy in place and the RBA Governor Dr Phillip Lowe and his board should stand down or be sacked.