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Finder’s RBA survey: Home loan costs to rise, but not savings rates

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The majority of experts are predicting a rate rise before the end of the year, according to a new Finder poll.

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.

While all participants (100%, 38/38) agreed that the cash rate will not move this coming Tuesday, more than 3 in 4 (76%, 29/38) predict a rate increase before the year ends. That's up from 58% last month.

A small group of respondents (16%, 6/38) predict the cash rate will increase in the first half of 2022.

Graham Cooke, head of consumer research at Finder, said it was just a question of timing.

"We've now got strong agreement that rates are going up this year, but we are still waiting on the trigger for the RBA to move. That trigger could be the US Federal Reserve, which is expected to increase rates next month – but that doesn't mean the RBA will follow immediately."

Shane Oliver of AMP said the RBA's conditions for raising rates are likely to be in place by the September quarter.

"Unemployment is likely to have fallen below 4% by mid-year equating to 'full employment'; wages growth is accelerating and is likely to be running at an annual pace of 3% or more by mid-year; underlying inflation is likely to continue running above the midpoint of the 2–3% target range.

"Our base case is for the first hike to be in August but there is a very high risk it will come in June if wages growth picks up as we expect, underlying inflation continues to surprise on the upside and unemployment continues to fall," Oliver said.

Positive economic sentiment continues to climb

Finder's Economic Sentiment Tracker gauges experts' confidence in 5 key indicators: housing affordability, employment, wage growth, cost of living and household debt over the next 6 months.

Positive economic sentiment is the highest it has been since the start of 2018, reaching 38%.

Cooke said rising sentiment towards housing affordability and, by extension, the cost of living had pushed overall economic sentiment to a new high.

"Experts hold the view that the slowing down of the housing market will lead to more favourable conditions for potential homeowners in the coming years."

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Panellists are split on whether banks will raise their savings rates

Data from the Australian Prudential Regulation Authority (APRA) shows that Australians are saving more than ever, with more than $450 billion of cash and deposits being held by financial institutions.

As such, half of experts and economists (52%, 14/27) who weighed in* say it is less likely banks will raise their savings rates alongside the cash rate, due to increased savings consumers have in their bank accounts.

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"We've seen an unprecedented surge in the content of bank vaults over the last 2 years. This could be bad news for savers because banks, essentially, don't need your money. We are perhaps unlikely to see the usual percent-for-percent increase in savings rates as the cash rate moves this year," Cooke said.

At the same time, Finder has seen the number of people looking at personal loans up 86% in February.

Mark Crosby of Monash University said one reason why consumers were turning to borrowing in the current climate was because household savings rose significantly in the previous year.

"Now consumers have collateral and are more willing to borrow," Crosby said.

Peter Boehm of CLSA Premium said there were a number of reasons why consumers were turning to borrowing.

"To consolidate expensive credit and store card debt; to buy higher priced consumer goods (like cars) for which it is difficult to save, given low interest rates and negative real purchasing power. Also because personal loan rates may be secured at historical lower rates, and because personal loans are cheaper than most credit cards," Boehm said.

Angela Jackson of Impact Economics and Policy said higher inflation and low interest rates made it a good time to borrow.

"The value of debt will go down due to inflation and the cost of servicing debt is low," Jackson said.

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

Here's what our experts had to say:

Nicholas Frappell, ABC Bullion: "Persistent price pressures and a robust labour market will encourage the RBA to take earlier action to tighten monetary policy."

Shane Oliver, AMP: "The RBA's conditions for raising rates are likely to be in place by the September quarter. Unemployment is likely to have fallen below 4% by mid-year equating to "full employment"; wages growth is accelerating and is likely to be running at an annual pace of 3% or more by mid-year; underlying inflation is likely to continue running above the midpoint of the 2–3% target range. Our base case is for the first hike to be in August but there is a very high risk it will come in June if wages growth picks up as we expect, underlying inflation continues to surprise on the upside and unemployment continues to fall."

Annette Beacher, ausbiz: "More data reports are needed to pull the trigger, as the RBA told us ad nauseam recently."

David Robertson, Bendigo Bank: "The RBA is very close to starting their tightening cycle and exiting pandemic monetary policy settings, but will probably wait for 2 more sets of inflation data (in April and July) before hiking rates in August. A series of cash rate hikes up to around 1.5% by mid-2023 should then follow."

Sean Langcake, BIS Oxford Economics: "The RBA's messaging remains very patient on rate rises. We agree with their assessment that headline inflation will ease back after Q1 as fuel prices correct and supply networks normalise. If this comes to pass, they will allow for a wage growth recovery to properly take root before raising rates."

Brian Parker, Chief Economist: "It'll take some months for the Bank to get enough evidence of sustainably faster wage inflation in order for them to move."

Peter Boehm, CLSA Premium: "The pressure for increasing the cash rate is building and the first increase which I expect to occur around the middle of the year will be followed pretty quickly by further increases. Mortgage borrowers should take measure as those coming off fixed rates and those on variable rates will likely face much higher monthly repayments over the course of 2022 and beyond."

Stephen Halmarick, Commonwealth Bank: "Wages and inflation pressures are building."

Saul Eslake, Corinna Economic Advisory: "By August there will have been 4 consecutive readings of 'underlying' inflation within the target band, and evidence of a pick-up in wages growth, sufficient to persuade the RBA that inflation is "sustainably" within the target band."

Craig Emerson, Emerson Economics: "Much of the inflation is transitory, caused by supply-chain disruptions. The RBA will see through this and wait for wages to rise."

Mark Brimble, Griffith University: "June call will depend on the degree to which inflation is shown to be transitory (or not). By then supply chains and labour markets (opening of borders) should settle down and hopefully, geo-political issues currently impacting on energy markets will also have reduced – all of which are disinflationary and the underlying pre-COVID macros may return."

Tim Nelson, Griffith University: "Inflation pressures are building. Given monetary policy lags, an early rate rise is potential (and possibly likely)."

Tim Reardon, Housing Industry Association: "It will take this long for wage and inflation pressures to become broad and embedded. Current inflationary pressures are largely contained to fuel prices and home building costs. Inflation in Australia is relatively low by international standards. Supply chains are headed in the right direction to ease price pressures. Structural issues that suppressed interest rates before the pandemic still exist and will require years of infrastructure investment and structural reform to address."

Angela Jackson, Impact Economics and Policy: "Strong employment growth and healthy inflation are likely to require RBA to start the process of normalising interest rates. They may move earlier than September, with a move in the third quarter of 2022 most likely. Any further COVID-19 outbreaks would change this timeline."

Sarah Hunter, KPMG: "The economy has shaken off Omicron, and with the labour market continuing to tighten wages growth is likely to lift (which in turn will feed into price inflation). We expect that the RBA will have enough confirmation of these trends by August, which will trigger rate lift-off."

Leanne Pilkington, Laing+Simmons: "Much will depend on the March numbers. While some economists have suggested a rise as soon as mid-year, the RBA continues to temper the discussion by insisting it won't move until it's sure of where wage growth and inflation actually sit. It's a guessing game, but at this stage, we believe an increase is more likely later in the year."

Nicholas Gruen, Lateral Economics: "I've never believed that they'll deliver on previous intentions which I think of as part of the (usual) overshooting of the cycle. Already it's pretty clear they're not going to wait several years, which was the original story."

Mathew Tiller, LJ Hooker: "Despite the strength of recent economic data, concerns around COVID and geopolitical issues cloud the outlook. That said, recent comments and economic data ensures the RBA is likely to increase the cash rate earlier than previously expected."

Geoffrey Harold Kingston, Macquarie University: "Inflation around the world is rising faster than expected."

Jeffrey Sheen, Macquarie University: "The key (trimmed) measures of Australia inflation have just reached the RBA's target range after 5 years being below. The RBA should and may well wait until 2023 to see if inflation remains stable. The tapering of bond purchases in 2022 is a suitable response in current circumstances."

Michael Yardney, Metropole Property Strategists: "The RBA will be patient and wait for signs that inflation will remain consistently within their desired band and that wages growth is consistently occurring."

Mark Crosby, Monash University: "Sufficient inflation data will have been published by Q4 for the RBA to be comfortable raising rates."

David Zammit, Mortgage Choice: "I don't expect a change to the cash rate in March. Quantitative easing, which is the process of the central bank pumping money into the system to push rates artificially lower, has now stopped in Australia which has had the "feel" of interest rates rising even though the RBA hasn't shifted the official cash rate. The labour market is strong and while inflation is on the rise, it remains lower than in other countries, in particular the United States. Competition in the home loan market is fierce, and fixed rates are starting to rise because the market's expectation is that interest rates will start to ramp up in the future. Variable interest rates are still low as they reflect short-term borrowing markets while fixed rates are longer-dated depending on the term. Mortgage Choice monthly home loan approval data shows that borrowers are responding to these changes in home loan pricing, with demand for fixed rates steadily declining since October 2021."

Andrew Wilson, My Housing Market: "Highly improbable sustained annualised quarterly Wage Index increases above 3% before 2023 – this is the RBA's clearly stated precondition for a rate rise."

Alan Oster, NAB: "Economy will be better and unemployment near 3.6%. Price and wages pressures are building, so time to start renormalising, but wouldn't rule out November either."

Malcolm Wood, Ord Minnett: "The RBA is patient, waiting for wages to sustainably be over 3% year-on-year, and therefore underlying CPI sustainably in 2–3% band."

Rich Harvey, Propertybuyer: "Inflationary pressures are building momentum in the economy due to supply chain disruptions and looks like wages growth is slowing building – so the RBA's view will likely change over the next few months leading to 1 or 2 small increases in late 2022."

Matthew Peter, QIC: "The RBA needs to raise rates this year. It will be either at their August or September meeting. The August meeting coincides with the release of the Statement of Monetary Policy. But between then and their September meeting is the release of the quarterly wage data. The RBA will wait for the wage data to confirm their first rate hike."

Noel Whittaker, QUT: "With banks increasing rates anyway it's about time the reserve bank joined the party as well."

Jason Azzopardi, Resimac: "The RBA remains steadfast on underlying inflation being sustainable with target band before increasing rates and I can't see this happening before Q4 or 2023."

Christine Williams, Smarter Property Investing: "As previously mentioned our unemployment rate is quite low, and the Federal Election is in May. Global money is still at its all-time lowest, I don't think even with house prices increasing and wage increases delayed the RBA will not increase before the end of quarter 3."

Jonathan Chancellor, The Daily Telegraph: "While a 0.1% cash rate is no longer needed, the RBA is obviously still prepared to wait to see just how much of the year pans out. It seems unlikely to move until concluding that the inflation spike is persistent, and that will need to include wages growth which remains weak. The opening of borders between states and countries will be closely watched, especially for the impact on employment. Obviously, the RBA has recently advised it was plausibly possible to see the rate hikes start this year, which is reason enough to think it will."

Mala Raghavan, University of Tasmania: "The Australian economy is recovering, and the people are slowly learning to live with COVID. However, the rising inflationary pressure driven by oil price shocks, supply disruption, and the recovering consumer demand could lead to a cash rate hike much earlier than anticipated, i.e. somewhere between early to mid-2023."

Jakob B. Madsen, University of Western Australia: "The demand for liquidity across the world will increase along with higher government debt and push interest rates up across the world."

Dale Gillham, Wealth Within: "The current inflation rate is in the range that the RBA likes, and with the country opening up issues around supply chain will ease and so I expect inflation will fall somewhat and ease the pressure to raise interest rates before mid-year."

Brodie Haupt, WLTH: "With continued uncertainty and rising pressure on the economy, I don't think there will be a change to the cash rate until 2023. I feel it will take some time to meet the sustained 2–3% target range."

Other participants: Peter Munckton, BoQ. Stephen Koukoulas, Market Economics.

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