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Finder’s RBA survey: 97% of experts confident the cash rate will rise

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Aussie homeowners will be stung with yet another rate hike in October, according to new research from Finder.

In this month's Finder RBA Cash Rate Survey™, 39 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

Almost all panellists (97%, 38/39) believe the cash rate will change on Tuesday, with over half (56%, 22/39) forecasting another increase of 50 basis points – bringing the cash rate to 2.85% in October.

Almost two-thirds of panellists (59%, 23/39) expect the RBA to then hold the cash rate in November.

Graham Cooke, head of consumer research at Finder, said a sixth consecutive rate hike will pile even more pressure on homeowners.

"The current series of rate hikes has added almost $8,000 to the annual cost of a $500k mortgage.

"Another 50-basis-point hike will push that cost up to near $10,000.

"With 1 in 4 (26%) Aussie homeowners already struggling to pay their mortgage in September, this could be the rate rise that pushes some borrowers to the limit," Cooke said.

Garry Barrett from the University of Sydney cited inflation as the main driver for another rate rise.

"Demand pressures are strong and inflation remains well above target," said Barrett.

Michael Yardney of Metropole Property Strategists agreed.

"The cash rate is still below the neutral levels. If the RBA is genuinely keen to stomp on inflation, they must raise rates further," Yardney said.

What a 50-basis-point increase will cost mortgage holders

Cooke said the anticipated rate rise will tip even more homeowners into mortgage stress.

"With the fuel excise ending on 30 September, and the cost of groceries, energy and travel prices all skyrocketing, this housing blow will be especially painful for many.

"It also means that the bottom rung of the housing market ladder is getting harder and harder to reach, as these rate increases will seriously hamper potential borrowers' ability to buy.

"You can also expect the decline in sales volumes and prices to continue for some time," Cooke said.

Cash rateAverage home loan rate*Average monthly repaymentAverage monthly increaseAverage annual repaymentAverage annual increase
April 20220.10%3.45%$2,231-$26,772-
September 2022 (current)2%6%$2,886$655$34,632$7,860
October (full rate rise applied)3%6%$3,046$815$36,552$9,780
Source: Finder, RBA. *Owner-occupier variable discounted rate. Repayments based on a $500,000 loan

Cooke said even if you can shave just 50 basis points off your home loan rate, you've essentially rolled back one of the rate rises.

"The average variable mortgage interest rate on Finder is 4.51%, but a few providers are still offering rates starting with a "3".

"With a $500,000 mortgage, switching your variable home loan rate from the average (4.51%) to the lowest rate on offer (3.54%) would save you more than $3,300 over the course of a year," Cooke said.

The worst of inflation is yet to come, but will improve in 2023

Australia's inflation rate reached 6.8% in August, down slightly from 7% in July.

More than 1 in 2 experts who weighed in* (55%, 17/31) said that CPI inflation will peak between 7% and 7.5% by the end of 2022.

Cooke said Aussies should brace for expenses like groceries, travel and accommodation to get even more expensive over the coming months.

"The RBA has been waiting for a sign that inflation is easing off. Despite a slight softening in August, we'll likely see the inflation rate spike back up.

"While the majority of Finder's panel is predicting the RBA will not apply any more rate rises for the rest of the year, at this stage we're likely to see further hikes in early 2023," Cooke said.

Azeem Sheriff from CMC Markets APAC & Canada said there were no immediate signs of inflation decelerating.

"The housing market remains tight, especially around the rental market, which is keeping inflation high.

"Energy has a small part to play although not as material as rental and retail expenditure," Sheriff said.

More Aussies to buy apartments as houses become unaffordable

A whopping 3.2 million Australians now live in a unit – an increase of 17% since 2016, according to ABS Census figures.

The majority of panellists (90%, 27/30) expect this trend of increasing unit sales to continue over the next 12 months.

Cooke said investors used to be more cautious about apartments, but that may be about to change.

"As many Aussies ditch the dream of owning a plot of land and 4 walls and students return to university, the market for good-quality, well-located units could heat up," he said.

Leanne Pilkington of Laing+Simmons said this was a trend already in motion.

"The relative affordability of apartments, as well as developers integrating better lifestyle amenities in their projects, should see apartment living become both more accepted and even preferred by certain sections of the population," Pilkington said.

Dale Gillham of Wealth Within said many Australians simply cannot afford the quarter-acre block.

"The average wage to housing affordability is steadily rising and is getting to the point where Australia is in the top few countries for the most expensive housing in the world.

"This trend will continue and so buyers will buy what they can afford and that is not the quarter-acre block," Gillham said.

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

Here's what our experts had to say:

Tim Reardon, Housing Industry Association (Hold): "Additional data from Sept CPI is released at the end of October."

Sveta Angelopoulos, RMIT University (Increase): "Continued quarterly growth, combined with supply chain constraints and high fuel costs continue to feed inflation."

Andrew Wilson, My Housing Market (Increase): "Although RBA remains a hostage to stale June quarter inflation data, another rate rise is likely and following sharp increases last week in the US and UK."

Azeem Sheriff, CMC Markets APAC & Canada (Increase): "Core inflation still remains relatively high, not immediate signs of decelerating, awaiting CPI numbers from OCT but also new monthly CPI figures. Consumers are still spending per retail sales and still have savings to manage their discretionary spending. Effects of rate rises will take a few more months to see a material reduction, however AUS will be cautious not to be too aggressive like the US and other central banks to lead the economy to some form of recession, despite the labour market still being quite tight."

Anthony Waldron, Mortgage Choice (Increase): "I think October will see the Reserve Bank board announce another increase in the cash rate. The minutes from its September meeting suggest that further rate increases will help combat persistently high inflation."

Shane Oliver, AMP (Increase): "Inflation is high and still rising, economic data apart from housing indicators has been strong since the last meeting and the RBA has indicated that it expects to increase interest rates further. After 5 rate hikes in a row the RBA should be slowing the pace of rate hikes to be able to assess the impact of rate hikes to date and allow for monetary policy lags. As such we expect a 0.25% hike. But the risk is high that it will go with another 0.5% hike given the excessive focus on backward-looking inflation and jobs data and the hawkishness evident in other major global central banks. A 0.4% hike would be a nice compromise."

Mala Raghavan, University of Tasmania (Increase): "September quarter headline inflation is around 6.1%, while the trimmed mean inflation is not far off, i.e. about 4.9%. According to ABS data, Australia is still experiencing a surge in consumer spending while simultaneously facing supply-side constraints. As a result, inflation is expected to rise further to 7.75%. Hence, the RBA would increase the cash rate to dampen the inflationary pressure."

Alex Joiner, IFM Investors (Increase): "The RBA is seeking to get policy rates to a slightly contractionary setting to reduce the pressure on inflation. However it is cognizant that households are vulnerable to it overtightening and the impact of higher interest rates, negative real income and negative wealth shocks is a key downside risk to the economy going forward."

Rich Harvey, Propertybuyer (Increase): "The RBA has clearly outlined it needs to continue raising interest rates to quash higher inflation and get the genie back in the bottle. However inflation rates in Australia are much less problematic than in the US or UK where it is really taking hold."

Dale Gillham, Wealth Within (Increase): "Inflation is still high, and the economy needs to slow more and so RBA is hell bent on having the cash rate back to over 4% and possibly higher. That said with what is occurring around the world with recessionary fears rising they may not need to go that high."

Mark Crosby, Monash University (Increase): "Clearly still a need to catch up and return rates to neutral."

Malcolm Wood, Ord Minnett (Increase): "I expect the RBA to pause its tightening cycle in November. With fiscal tightening from Chalmers' first budget, Europe in recession and the US soon to follow, this should end the tightening cycle."

Peter Boehm, Director (Increase): "There is still some way to go for the RBA to meet its stated aim of curbing inflation. The problem is, the cure may be worse than the illness with rate rises potentially leading Australia into recession territory. Borrowers face the bleak prospect of higher mortgage repayments and inflation which for many will be a burden too heavy to carry. And this scenario is not just confined to borrowers, renters are also being hit with increasing rent rises (and rental property shortages) and a higher cost of living. Raising interest rates is a blunt weapon that is likely to do considerable damage before any real economic benefits are enjoyed by anyone. And then we have the savers who have not benefited fully, if it all, from interest rate increases. So no one is winning at the moment."

Jason Azzopardi, Resimac (Increase): "Long way to go to curb runaway inflation."

Garry Barrett, University of Sydney (Increase): "Demand pressures are strong and inflation remains well above target."

Mathew Tiller, LJ Hooker Group (Increase): "A number of recently released data points indicate that inflation may be close to reaching its peak, however, inflation will remain well above the RBA's target range for some time. Therefore, I expect that the RBA will continue to increase the cash rate but do so at a slower, more cautious pace."

Tim Nelson, Griffith University (Increase): "The RBA seems to be intently focused on price inflation, despite global conflict and commodity prices being much of the driver."

Leanne Pilkington, Laing+Simmons (Increase): "Inflation remains a pressing concern not only in Australia but globally, and we recently saw the US Federal Reserve aggressively raise interest rates again. We expect the same here, although given the lag between rate rises and actual economic impacts, we believe there is cause for a more balanced and careful approach from the RBA."

Nicholas Frappell, ABC Refinery (Increase): "Strong labour conditions and persistent inflation, particularly via shelter costs will encourage the RBA to get ahead of the curve."

Matthew Peter, QIC (Increase): "The RBA has no choice but to hike rates by 50bps. If it doesn't, the AUD will tank even further and the Bank will lose control of inflation."

David Robertson, Bendigo Bank (Increase): "The RBA will step down the pace of hikes from 50 basis points to 25 in October or November, but the official cash rate should exceed 3% by February. A tightening bias will remain in place for some time until inflation is safely back within target."

Brodie Haupt, WLTH (Increase): "The Reserve Bank will continue to increase the cash rate until the inflation begins to abate."

Sarah Hunter, KPMG (Increase): "The Board has strongly signalled that they see a higher cash rate as necessary to dampen momentum in the domestic economy and gradually return inflation to the 2–3% target band."

A/Prof Mark Melatos, School of Economics, University of Sydney (Increase): "Inflation is significantly above the RBA's target band and likely to increase further, notwithstanding declining oil prices and an increasing risk of global recession. Like most central banks, the RBA was slow to recognise the inflation threat and its policy settings need to catch up to the inflation reality. Moreover, the RBA's hand is likely to be forced by increasingly aggressive tightening actions by other central banks. This means the cash rate will likely need to be raised steadily in the near future with a likely pause early–mid 2023 as the RBA assesses the impact of its tightening strategy."

Cameron Kusher, REA Group (Increase): "Inflation is still well above target range and remains below the RBA's estimate of neutral rates so, more rate hikes are coming."

James Morley, The University of Sydney (Increase): "I think the RBA will continue raising rates for the next few meetings because they will want to be seen to be raising real interest rates as long as reported inflation is high. Even if upcoming monthly measures of inflation suggest some easing of year-on-year inflation, which they may not, the real overnight cash rate will still be quite negative. So the RBA will want to raise rates to show that they, like many other central banks, are primarily focussed on containing inflation. It is probable that the RBA will be raising rates over the next few months even though many indicators of real economic activity will start to weaken, both globally and domestically. This will likely include signs of mortgage distress, with increased late payments. However, I expect the RBA to keep raising rates as long as both headline and trimmed mean inflation remain significantly above their target range, and especially if fiscal policy remains relatively expansionary, which it currently is. I would anticipate a 50bps increase in October. The RBA may shift to "only" 25bps increases in November and December if there are strong indications of a weakening economy. It will be very challenging for the RBA to engineer a "soft landing". Given anchored long-term inflation expectations, I don't think the RBA needs to raise rates as much as they are likely to do so. The burden should be on fiscal policy to ease demand pressures, given expansionary fiscal policy is contributing so much to the current pressures. Even without any further changes in the policy rate, real interest rates are likely to rise over the next 6 months as inflation comes down following the removal and some reversal of many one-off price-level effects related to COVID and the war in Ukraine, especially if there is very weak global growth or possible recessions in many countries, as now appears likely (the UK may already be in recession). The increases in the RBA's policy rate now will have lasting negative effects in 6 months' time and beyond, substantially increasing the probability of recession in 2023."

Nicholas Gruen, Lateral Economics (Increase): "I think the bank should pause, but Lowe has already more or less signalled that there will be a rate rise in Oct."

Noel Whittaker, QUT (Increase): "We are still well below what RBA regards as normal."

Sean Langcake, BIS Oxford Economics (Increase): "The October meeting looks like it will be a lineball call between a 25- or a 50-basis-point increase. The RBA continues to talk tough on inflation, but they are acknowledging the case for smaller increases is getting stronger. Either way, we think the cash rate is only 75 basis points away from its peak."

Craig Emerson, Emerson Economics (Increase): "The RBA will increase the cash rate by 2 lots of 25 basis points and then pause."

Stephen Halmarick, Commonwealth Bank (Increase): "Need to combat higher inflation."

Stella Huangfu, University of Sydney (Increase): "There are signs that inflation in Australia started easing. However, it is still significantly above the target 2–3% inflation rate."

Geoffrey Harold Kingston, Macquarie Business School (Increase): "Inflation is high relative to current cash rate."

Jakob B Madsen, UWA (Increase): "Inflation may be there to stay for a while."

Michael Yardney, Metropole Property Strategists (Increase): "The cash rate is still below the neutral levels – if the RBA is genuinely keen to stomp on inflation, they must raise rates further."

Stephen Miller, GSFM (Increase): "Inflation momentum is strong and will require further rate increases."

Mark Brimble, Griffith Uni (Increase): "The RBA is likely to want to fully normalise rates and then wait to see how this wave of increases flows through the economy. A return to fundamentals next year (pending extraneous factors such as Ukraine and natural disasters) will then see the economy tip over and need support."

Brian Parker, Australian Retirement Trust (Increase): "RBA still only just in neutral territory; needs to do more."

Alan Oster, Nab (Increase): "Economy still strong and inflation is accelerating. Risk is that business doesn't face enough pushback re increased prices from consumers."

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