Dr Phil Lowe and his RBA board saw the light and took the punt to keep interest rates on hold, with the cash rate of interest perched at 3.6% after 10 rises since May last year. They have made the right decision, even if they need to give it one or two more school tries in the future, though I doubt it’ll come to that.

I’ve never seen a more aggressive interest rate rising policy so we’re in unchartered waters, but I’ve never seen a global pandemic with a worldwide lockdown sending official interest rates to just above zero. I’ve never seen a crash of a stock market to be so short with a bounce-back of share prices like never before.

I’ve seen cost push inflation like this previously and it came when OPEC’s oil prices sent inflation soaring in the 1970s, which rolled high inflation levels into the 1980s. That decade also brought financial market deregulation and central banks were too slow to act on rising inflation. It saw home loan interest rates hit 17%.

This is why central banks today have played it tough on interest rates, and it will keep the RBA on a close watching brief on our economic data, so Dr Phil can be sure that this pause, and, possibly, the end of rate rises, represent the right medicine to deliver sustainable low inflation and a healthy, albeit slower economy.

I’ve said before that the good doctor doesn’t need a recession on his CV, but he has to have a win on inflation, especially when he has disappointed many home loan borrowers, who thought his “no rate rises until 2024” call was a set-in concrete promise. Trained economists didn’t see it this way but normal people saw his speculation on interest rates as a believable prediction from the man in charge of rates.

They were wrong. So, let’s see the strong arguments for a pause now. Try these worrying indicators:

1. Ten interest rate rises in less than a year.
2. 40% of borrowers (over 800,000 people) face a mortgage cliff, when fixed rate loans turn to variable rates and repayments increase by $10,000 to $20,000 a year for loans from $550,000 to a million dollars. That’s a historically big number of consumers who will cutback on spending ‘big time’ in the second half of this year. In the past, fixed-rate loans were only 15% of total loans so interest rate policy worked more quickly.
3. Monetary policy works with a lag and the CBA says only 45% of the increases in the cash rate to date have passed through to scheduled mortgage repayments at the end of 2022.
4. Building approvals are 1% lower over the past year.
5. Owner-occupier credit is running at a 6.3% annual pace, a near 2-year low. Business lending growth also is near a 2-year low. Annual growth of loans is 7.6%, which is a 13-month low. As CommSec says, this is “…more evidence that rate hikes are working well to slow economic activity, especially housing demand.”
6. Business and consumer confidence is at deeply pessimistic levels and the reduced spending effect of the mortgage cliff won’t raise these important economic growth indicators any time soon.
7. Australian business conditions PMIs for March showed a renewed fall to a soft reading of 48.1, led by weaker services sector conditions and weakness in new orders and employment.
8. There is a banking crisis globally that is bound to reduce borrowing and economic activity.
9. AMP’s Shane Oliver reports “increasing talk of a slump in unlisted non-residential properties of 20% or so.”
10. Retail salesrose by a small 0.2% in February and are down by 1.5% on a three-month average, a clear sign that consumers are pulling back on spending
11. The February monthly consumer price index was lower than expected, tracking at 6.8% year on year after peaking at 8.4% per annum in December. And it looks to be declining slightly faster than the RBA was forecasting.

I could go on showing how house prices have fallen by 9% nationally, with Sydney off 13%, but there is one inflation problem that bobbed up this week and that’s a 6% rise in the oil price with OPEC+ cutting back production.

This might keep rate rises on the RBA’s radar but I can’t get over the potential big wack that mortgage cliff is going to have in coming months and over the rest of 2023. The only good news for stock market investors is that as the year goes on and the economy slows and recession talk escalates, it will move us closer to the first interest rate cut, which the stock market will like. Stock players don’t wait for important changes like rate cuts and invariably move six months ahead of such profit-affecting events.