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00:00There's a lot of talk about the resilience of Australian households given how low unemployment is at the moment given the buffers that the RBA say have been put in place with pandemic arrest savings. But how do you view that resilience in terms of in particular the weakness we're starting to see across the property market. That is true. We are starting to see some early signs of moderation in a number of key areas. And I guess the one that is most rate sensitive as well as reflecting the confidence is in housing. So clearly a further decline in house prices in the month of July. We've seen a couple of months now. And not only is the downturn intensifying. It's also broadening out from beyond Sydney and Melbourne. So no coincidence. House prices began to turn down as the RBA began its policy normalization and the first hike in May. We would expect to see further declines in the months ahead as the RBA continues to hike. And so we know there will be as well a lagged effect so broader through to the whole economy whether it's consumption broader construction activity. That slowdown is coming we think later in the year and more so in 2023. When do you see that pivot then potentially by the RBA because by their own analysis they look at more than one point three million households who are going to be affected. So a 40 percent or greater increase in mortgage payments at a time when real wages are still falling. So I think at the moment it's pretty clear that the bank like many other central banks around the world is almost solely focused on inflation. We will see upward revisions to their inflation forecast today and in the quarterly statement on monetary policy on Friday. It's worried about inflation expectations becoming unanchored and it's really quite keen I think to make sure this inflation psychology stays well behaved. And so that's what's driving in large part this policy normalization 50 basis point hike likely today and we think probably next month. They need to get rates to a more neutral level and possibly slightly restrictive to slow this economy. So that's the focus. I think they will continue to do that for several more months. We think the pace of tightening will probably drop back by October November to more standard or moderate 25 basis point moves. But the RBA is lagging global central banks here. The cash rate at the current 135 is still low by global standards. Inflation is way too high an extraordinarily strong labor market. So I don't think we're going to see a pivot from them for some time. And the early signs will be when they think about dropping the pace of tightening and we think that's a couple of months away. Quickly do rate hikes in Australia move through to borrowers so it's faster in Australia and other parts of the world. Because despite a pickup in fixed rate mortgages over the last couple of years which is unusual for Australia the bulk of Australians are still on variable rate mortgages. So that flows through fairly quickly as the RBA changes rates. The key lenders change their variable mortgage rates usually between 24 to 48 hours. So that moves through quite fast as a policy traction is stronger and particularly with highly indebted households. And we know Australians are amongst the most highly indebted in the world. That traction is greater as well. I think there's a lot of unusual factors driving this slowdown. So it is faster. But like I said I think we have to bear in mind that we are still fairly stimulatory levels of rates that are clearly not appropriate for such a tight labor market. And what has been a fairly resilient economy in this environment and what are you expecting from that review of the RBA announced by the Treasurer. The review comes at an interesting time. I mean we won't really get anything until early next year. But I think what it will focus on is a number of factors. How appropriate is the inflation target the 2 to 3 per cent the flexibility around it. We suspect that will be retained. It seems to very much international best practice. I think the key really is around maybe the full employment target. Will that be broadened a bit more inclusive sustainable employment. Those types of targets that we've seen adopted around the world. And then importantly around communication what else can the bank do to bring itself to that international best practice maybe regular press conferences more detailed minutes. Could they involve voting in those minutes. And then really as well. Composition of the board. The Australian board is very skewed towards business leaders which is great input but probably lacks those with strong monetary policy expertise and academics. So I think it will look at a range of factors around the actual conduct of monetary policy and the framework as well as the board and compensation.

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RBC Capital Markets' Ong on RBA, Australian Economy

The Reserve Bank of Australia is set to raise the cash rate for the fourth consecutive month on Tuesday bringing the cash rate to a six-year high of 1.85 per cent. Su-Lin Ong, chief economist with RBC Capital Markets in Sydney, discusses the central bank decision and the wider Australian economy. She speaks in "Bloomberg Daybreak: Australia" with Haidi Stroud-Watts and Shery Ahn. (Source: Bloomberg)

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