A UBS survey in June underlined strong growth in interest payments received by households, which accounted for 5.5 per cent of household income, which it said was the highest share since 1991.

There is also a wider economic debate about limitations of monetary policy (moving interest rates) to deal with inflation in areas such as rents, insurance and energy.

Pearce maintained that using fiscal policy – government taxing and spending through the budget – would be a more effective way to dampen inflationary pressure in the economy.

“Prove to me the direct connection between hiking rates 25 to 50 basis points more and a slowdown in inflation,” Pearce said.

“Because if you’re bumping up the incomes of people who are already spending … they’re going to keep spending.”

Many in the market expect rates to remain on hold for months, ANZ Bank economists on Friday predicting the Reserve Bank would make its first cut in rates next February and deliver “hawkish” comments after this week’s meeting.

As well as affecting households, interest rates also remain a key driver of market sentiment, with Wall Street and the ASX last week hitting record highs after the US Federal Reserve chairman Jerome Powell said the US could cut rates in September.

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Investors will also be poring over a flood of financial results from Australia’s biggest listed companies over the rest of this month during the earnings reporting season.

Despite the slowing economy, Pearce says consumers appeared to be in generally reasonable shape, which pointed to “OK” results from companies. This makes him fairly positive on Australian banks – the fund’s biggest exposure – even though he struggles with the record valuation of CBA.

CBA shares briefly hit $138 last week before a slide on Friday. The stock has risen more than 25 per cent in the past year, recently overtaking BHP to become the largest company on the Australian sharemarket.

Pearce said institutional investors were struggling to justify the high price, and on “any reasonable metric” CBA looked overvalued. “We’re all scratching our heads as to how you can actually be a buyer at these sorts of levels,” Pearce said. Even so, bank stocks typically crashed when there was a fear of big writedowns, and this did not look likely given the state of the economy.

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