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Finder’s RBA Survey: 44% of experts say BNPL is at alarming heights as cash rate holds

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Hopes of a rate cut will have to wait another month as the RBA holds the cash rate for the fifth consecutive meeting.

In this month's Finder RBA Cash Rate Survey™, 38 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

All experts correctly predicted a cash rate hold – keeping it at 4.35% in June.

Graham Cooke, head of consumer research at Finder, said the decision might feel like a punch in the gut for homeowners holding out for a rate cut.

"With inflation showing little signs of rapid decline, hopes of a rate cut to ease the pressure on household budgets seem further away.

"Households will be feeling the pinch for a while longer, probably into 2025.

"Rising costs are relentless, eating away at savings and squeezing wallets, causing genuine financial pain for many."

BNPL use at an all time high, experts agree it's alarming

Worldpay's Global Payments Report 2024 revealed buy now pay later (BNPL) use is at an all-time high in Australia – accounting for 15% of eCommerce transaction value in 2023.

Almost half of experts who weighed in* (44%, 8/18) say the current level of BNPL use is alarming.

Majority of those who said it was not alarming cited levels above 30% would raise red flags.

Finder's Consumer Sentiment Tracker shows 2 in 5 (42%) Australians have used a BNPL service in the past 6 months.

Those who have used BNPL are carrying an average of $1,073 in debt – this is up from $916 in 2022.

Gen Z (58%) are the most likely to use BNPL schemes, followed by gen Y (56%) and gen X (39%). Just 12% of baby boomers use it.

However, gen X carries the most debt ($1,425) of all the generations, followed by gen Y ($1,058), and gen Z ($676).

Cooke said a growing number of Australians are living beyond their means.

"Once hailed as a way to ease the burden of big-ticket purchases by spreading costs, these financing options can become a major source of budget strain.

"From clothes to holidays, consumers are increasingly using these services, but these lenders make a quarter of their income from late fees, so beware."

1 in 3 experts think inheritance taxes are too low

More than a third of experts (36%, 9/25) believe inheritance taxes should be increased.

Shane Oliver from AMP said inheritance tax within reason is a sensible way to deal with rising wealth inequality as it's progressive and unlikely to distort work effort decisions.

"It could over time be used to help fund a reduction in the rate or rise in the threshold for the top marginal income tax rate. Ideally it should be phased in over a long period," Oliver said.

Stella Huangfu from the University of Sydney said otherwise.

"High inheritance taxes could discourage savings and investment if individuals feel that their wealth will be heavily taxed upon death. This could have negative implications for overall economic growth," Huangfu said.

Many Aussies are not planning for the day when they die.

Finder research revealed 3 in 5 Australians (60%) – equivalent to 12.5 million people – don't have a will.

Men (48%) were more likely to have their affairs in order than women (33%).

Of those with a will, 34% were prompted to get one due to the birth of a child.

Getting sick or terminally ill (9%), married (8%), and buying a property (7%) were other reasons that gave cause to Aussies taking out a will.

Cooke said Australians are not prepared for one of life's certainties.

"Common reasons people make the mistake of not drawing up a will is they don't think they have sufficient assets to justify making a will, are fearful of discussing death or simply haven't gotten around to it.

"It's important to plan what's going to happen to your assets after you die and make provisions for dependents.

"Money is as important in death as it is in life and a will means there's less room for error," Cooke said.

Average positive economic sentiment is up from May, but down overall

Finder's Economic Sentiment Tracker gauges experts' confidence in five key indicators: housing affordability, employment, wage growth, cost of living and household debt.

The sentiment around employment is largely negative, with 66% of economists expressing concern. This reflects the current challenges in the labour market, where a weakening economy has led to increased unemployment concerns.

Housing affordability continues to be a major problem, with 68% of economists expressing a negative outlook. This overwhelming sentiment highlights the ongoing issue of high housing prices relative to income. Only 7% of economists see a positive trend, indicating that relief in housing costs is not expected anytime soon.

The cost of living remains a significant issue, with 50% of economists viewing it negatively. This aligns with the persistent high inflation that Australians are experiencing. However, 32% of economists are neutral, possibly reflecting the government's measures to ease living costs. Only 18% of economists have a positive outlook, showing limited optimism about immediate improvements.

Average positive sentiment across these metrics has been tracking down over the last few months but has risen to 13% in June, up from 8% in May.

*Experts are not required to answer every question in the survey

Here's what our experts had to say:

Garry Barrett, University of Sydney (Hold): "Signs of softening of the economics."

Peter Boehm, Pathfinder Consulting (Hold): "There is no justification to reduce rates based on current economic data. In fact, it's quite the opposite. The pendulum is swinging towards an increase because of sticky inflation and a government fiscal policy which is likely to put upward pressures on inflation. Plus, I doubt there is a single Australia right now who is not suffering from sustained and ongoing price increases in such areas as utility/energy, health, food and just general living costs. By way [of] example, many charities cannot keep up with demand due to an increasing number of families struggling to put food on the table or cover essential living expenses. The possibility of another rate increase is on the cards and that will push many mortgage borrowers over the edge, and take many other Australians with them."

Harry Murphy Cruise, Moody's Analytics (Hold): "The outlook for Aussie inflation has gotten a little murkier of late. With inflation digging in its heels, the government is ramping up spending to bring it down faster. The government (and RBA) hopes the rebates will lower inflation, first by temporarily lowering the price in the CPI, and secondly by tempering inflation expectations. Treasury expects the rebates to shave 0.5 percentage point from the headline inflation rate in the year to 30 June, 2025. And it's probably not wrong. But the big question is what it does to underlying inflation – the Reserve Bank of Australia's preferred measure of inflation, which strips out volatile items, often food and energy. These impacts are much less clear. It will all depend on how much of the energy rebates gets spent, and how much gets squirrelled away into savings. If they're spent, it would add to demand at the exact same time the RBA is trying to take it out, adding to underlying inflation even if the headline figure comes down. What's more, the rebate comes at the same time as a slew of similar rebates from state governments and the reworked stage-three tax cuts, which are set to hand the average worker a tax reduction of A$1,500. All that will ensure the RBA stays put for a little longer; its next move will be down, but we'll have to wait a little longer. The board will be cautious not to pull the rate-cut trigger too early, what with large amounts about to hit bank accounts. We see rates staying where they are until December, when a 25-basis point cut will take the cash rate to 4.1%."

Evgenia Dechter, UNSW (Hold): "Despite signs of a slowing economy, the RBA will keep the cash rate steady as inflation continues to be above the target."

Craig Emerson, Emerson Economics (Hold): "The economy is slowing rapidly."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Hold): "I think it would take a lot – a 'material' increase in the underlying inflation rate in the near term, or a good reason to extend beyond mid-2026 how long it's expected to take for inflation to reach the midpoint of the target band – to prompt the RBA to raise rates again. But if inflation persists at its current level for longer, as opposed to continuing on a generally downward trend (with the occasional interruption), then the RBA would very likely delay any cuts in interest rates."

Nicholas Frappell, ABC Refinery Australia Pty Limited (Hold): "Despite the economy flying just above stall speed, the RBA may feel the need to stay the course. especially as the fiscal side looks relatively 'easy'?"

Dale Gillham, Wealth Within (Hold): "CPI is slowing albeit not fast enough for the RBA, however when the supply/demand equation equalises a bit more we should see more downside to CPI."

Matthew Greenwood-Nimmo, University of Melbourne (Hold): "Although inflation is still stubbornly high, the RBA is likely to hold the cash rate constant in the near term. There are signs of weakness in the economy, and the full impact of past rate hikes is yet to be fully felt."

Nicholas Gruen, Lateral Economics (Hold): "The economy is very sluggish so inflation may fall sufficiently that the Bank will take its foot off the brake."

Rich Harvey, propertybuyer (Hold): "Inflation figures still too high for RBA target and proving tricky to get down. Likely that they will hold for the remainder of the year with a chance of first cut in December or early next year."

Richard Holden, UNSW (Hold): "Inflation is ticking up not coming down."

Stella Huangfu, University of Sydney (Hold): "Australia's economy grew by a mere 0.1% in the first quarter of the year, marking the slowest growth since the end of the pandemic, according to the ABS."

Geoffrey Kingston, Macquarie University Business School (Hold): "Mixed data since the last meeting of the Bank board. A bad monthly inflation report alongside better news on whether the economy is slowing sufficiently. The Bank will probably sit on its hands for the next several months."

Stephen Koukoulas, Market Economics (Hold): "Weak growth, falling inflation."

Cameron Kusher, REA Group (Hold): "I believe the economy has been weak enough that the RBA won't change rates this month, the next CPI data release will be a key determinant of rate changes. "

Sean Langcake, Oxford Economics Australia (Hold): "Cost pressures remain elevated in the services sector. The CPI disinflation to date has been relatively swift, but the remainder of the path back to the target range could be bumpy. Subsidies announced in the budget will lower headline inflation in the near term. But the RBA will be focussed on core inflation – and the loosening of policy is otherwise stimulatory at a time when the RBA is looking to take some steam out of the economy. We now see the first cash rate cut coming in early 2025."

Jakob Madsen, University of Western Australia (Hold): "The FED fund rate is still more than 1% point above the RBA cash rate and the increasing worldwide government debt-GDP ratio is keeping upward pressure on interest rates."

Mark Melatos, School of Economics, University of Sydney (Hold): "Inflation remains above the RBA's target band despite moderating in recent months. House prices appear to have significantly decoupled from incomes and shrugged off the rate increases to date. As long as low unemployment (effectively full employment) persists, the cash rate is unlikely to be reduced and further increases remain a possibility."

Stephen Miller, GSFM (Hold): "Weaker labour markets will leave the RBA on hold even as inflation proves "sticky". Inflation should be on a clearer downward path by year-end or early 2025."

James Morley, The University of Sydney (Hold): "Despite recent cuts by the Bank of Canada and the ECB, the RBA will want to see further progress on inflation coming back to target, including in underlying measures, before starting a cutting cycle. The RBA did not raise rates as high as the Bank of Canada. While the policy rate is clearly having an effect on dampening the domestic economy, it has not had as much effect as in Canada in bringing inflation back down to target. I think it is unlikely that the RBA will raise rates given the weakness in the economy even if some measures of inflation show a small reversal upwards in the coming months."

Cameron Murray, Fresh Economic Thinking (Hold): "The macroeconomy is stabilising now and there is really no need for adjustments to monetary policy settings in this situation."

Tim Nelson, Griffith University (Hold): "No material changes in conditions."

Shane Oliver, AMP (Hold): "Following recent higher than expected inflation data the RBA still lacks the confidence to start cutting rates and so will hold for the next few meetings, with the risks still being on the upside for rates. But weaker growth and lower inflation should allow a cut by year end."

Brian Parker, Australian Retirement Trust (Hold): "Inflation is still too problematic for a rate cut, while a weak economy makes a tightening highly unlikely."

Matthew Peter, QIC (Hold): "The economy is on the brink of recession. The unemployment rate is rising. Inflation is falling, even if gradually. The RBA will be in a position to ease in support of the economy later in the year, without unduly rekindling inflation."

Nalini Prasad, UNSW Sydney (Hold): "Inflation is falling, giving the RBA some time to wait and see what happens."

Tim Reardon, Housing Industry Association (Hold): "Inflation will be increasingly sticky. Embedded inflationary pressures are increasingly evident. Fiscal policy will continue to add to inflationary pressures, especially through the cost of labour. The RBA will disregard the

impact of fiscal measures that mitigate 'cost of living pressures' on inflation. Ongoing."

David Robertson, Bendigo Bank (Hold): "The RBA will maintain its restrictive monetary policy setting with no change to the cash rate in June, and are still unlikely to be in a position to cut rates until early next year."

Kyle Rodda, Capital.com (Hold): "While there continues to be debate, not [to] mention signals and the markets and data, that policy isn't sufficiently restrictive, the RBA's priority remains balancing the risks to the labour market and inflation. The central bank will stick with its hold and hope strategy for as long as it can."

Jeffrey Sheen, Macquarie University (Hold): "GDP growth in the 1st quarter of 2024 was very weak, and may well be negative in the 2nd quarter. As a result, underlying wage and price inflation should moderate, allowing the RBA to cut the cash rate in September and in November."

Devika Shivadekar, RSM Australia (Hold): "Concerns around sticky inflation are justified therefore the RBA would take a cautious non-action stance."

Mathew Tiller, LJ Hooker Group (Hold): "Despite the latest monthly CPI being somewhat "sticky," other economic indicators suggest a slowdown in employment markets, household spending, and overall growth. This combination of results should see the RBA to keep rates steady."

Anthony Waldron, Mortgage Choice (Hold): "I expect the Reserve Bank will keep the cash rate on hold in June, given persistently high inflation."

Adj Prof Noel Whittaker, QUT (Hold): "The data is so conflicting – but I do think that the tax cuts coming up will be inflationary."

Andrew Wilson, Construction P/L (Hold): "No recent significant consistent change in CPI."

Tomasz Wozniak, University of Melbourne (Hold): "Yeah, nah! It's interesting! My forecast shows only a 60% probability of the cash rate increase in June but as much as a 75% chance in July. Additionally, the multivariate models for weekly data have the cash rate's current level out of the forecast intervals, indicating a decisive increase. However, the pooled forecast of weekly and monthly data using multi- and uni-variate models says HOLD. The election-year budget could generate inflationary pressure, requiring interest rate increases. However, it's reassuring to note that the government and the RBA are in sync in their view of inflation projection and the means of reaching the target. This alignment, clearly communicated and accepted by the audience, which is reflected in my forecasts. You can access these forecasts at https://forecasting-cash-rate.github.io/."

Michael Yardney, Metropole Property Strategists (Hold): "A rate cut from the RBA is unlikely until the end of 2024 or early 2025. They'll likely wait to see a clearer path on inflation before making any moves in either direction. inflation still remains significantly above their target range, however our economy is slowing considerably and we are experiencing a capital recession which will keep economic activity low until the cost-of-living crisis comes under control."

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