‘Patient Phil’: Interest rates set to rise, but when?

We do things differently Down Under. That’s both an observation from Reserve Bank governor Philip Lowe, and his apparent plan for lifting interest rates.

While central banks around the world are already responding to inflationary pressures by lifting interest rates – or preparing to – ‘Patient Phil’, as he is becoming known, says he is prepared to wait.

Make no mistake about the direction of the next move, of course. “Interest rates will go up,” Lowe told journalists at a National Press Club address on Wednesday.

But as for the timing, that remains anyone’s guess. Financial markets have pencilled in three or four cash rate increases this year. While a rate hike in 2022 is certainly “plausible”, Lowe says it is also “plausible” the first cash rate increase in more than decade is still “a year or more away”.

Lowe certainly seems bemused by financial markets pricing in Australia’s central bank to move lockstep with the United States Federal Reserve this year.

“I still struggle with how the same interest rate reaction is priced in Australia as in the United States,” Lowe said.

For one, inflation is running hot at 7 per cent in the US compared with 3 per cent here.

And Lowe is far from convinced that even that is here to stay. He appears to largely attribute the recent spike in domestic inflation to pandemic related issues, which may soon pass – namely, the surge in consumer demand for durables – such as home office desks and sourdough bread makers – at precisely the same time that supply chain issues made getting those products to homes more difficult.

As pandemic restrictions ease, however, and we get to spend more on services again, like cafés and travel, Lowe expects some of those inflationary pressures for goods to ease.