Central banks across the globe are fighting rampant inflation with aggressive interest-rate hikes, so much so that even rate increases can come across as dovish, depending on how they are framed. That was the case Tuesday as the Reserve Bank of Australia increased rates by a quarter of a percentage point and promised more increases to come. But that surprised investors expecting a half-point increase. The Australian dollar
and government bond yields
tumbled in response.
It’s worth looking at the statement from RBA Governor Philip Lowe, to see how a central bank could make a dovish point while in fact increasing rates. He bluntly begins by noting that inflation is too high. The Australian economy is growing, the labor market is very tight, and wage growth is picking up. All very Jerome Powell–like so far. Price stability is “a prerequisite for a strong economy and a sustained period of full employment” and so on. Now comes the pivot. “One source of uncertainty is the outlook for the global economy, which has deteriorated recently. Another is how household spending in Australia responds to the tighter financial conditions. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments. Consumer confidence has also fallen and hou …