Regal’s Charlie Aitken says the Reserve Bank will raise rates this month, and that he would vote for it himself.
“If I was sitting on the Reserve Bank board I would absolutely raise rates,” Charlie Aitken told the Switzer Show.
The Regal Partners group investment director was in little doubt about what happens at the RBA’s meeting on 28 and 29 September.
Asked whether he thought a rise was definite, he said “Absolutely”, and nailed down 4.6 per cent as where rates would head next, with the caveat that the Bank “might not be done yet” raising rates. He hedged it later in the same conversation, though: “that might be it, Pete. You don’t know. That may be it for interest rate rises. Who knows?”
The Reserve Bank has already raised three times this year, in February, March and May, taking the rate from 3.60 to 4.35 per cent. It held in June and August. And at the August meeting, according to its own minutes, members “considered whether to raise the cash rate target by 25 basis points at this meeting or to leave it unchanged” before deciding unanimously to hold.
The Bank has also kept an explicit tightening bias in writing. Its August statement says the board “will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if upside risks materialise.”
Why do rates keep going up?
Aitken’s case rests on where he thinks the inflation is coming from, and it is not housing.
“A lot of the inflationary pressure in Australia has absolutely nothing to do with housing,” he said. “It’s imported. It’s due to our lack of energy security which you can see is becoming another issue again.”
On the oil point, the Bank is making the same argument. Its August statement attributes current pressure directly to the oil market:
“The disruption to global oil supply is adding directly to inflation and there are indications that higher fuel prices are being passed through to prices of other goods and services, so inflation is likely to remain high for some time.”
Australian automotive fuel prices rose 7.5 per cent in July alone, after three consecutive monthly falls. The ABS put that down to higher world oil prices and the partial unwinding of the federal government’s fuel excise relief. That relief has since gone entirely, with the full 53.7 cents a litre back from 3 August.
Aitken goes beyond our lights and cars and right to the checkout, too. There is “inflationary pressure coming from all around the world, including diesel prices, all the soft commodities as well, which will go through to food prices.”
The RBA’s own language on inflation is blunter: headline inflation “is still too high”, and trimmed mean inflation “remains elevated and is little changed from the March quarter.”
Aitken also raised El Nino, and put it more mildly than the Bureau does. He said Australia was “possibly staring down El Nino here as well”. The Bureau of Meteorology’s Climate Driver Update, published on 1 September, is firmer: “El Nino is firmly established”, with the relative Nino3.4 index at +2.45C for the week ending 30 August, against an El Nino threshold of +0.80C.
As for waiting, Aitken was blunt. “It’d be a very courageous Reserve Bank who would say I want to wait till November to see just how bad this housing crisis is,” he said.
The RBA’s September decision comes at 2.30pm AEST on 29 September, after a two-day meeting. Its next one after that is on 2 and 3 November.
