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Finder’s RBA survey: Households hopeful as growing number of experts predict rate pause

RBA Cash Rate April 2023_Canva_1800x1000

Australian homeowners could be in for some much needed respite, according to a new Finder poll.

In this month's Finder RBA Cash Rate Survey™, 42 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

Two-thirds of the panel (62%, 26/42) forecast another cash rate hike, with the majority (60%, 25/42) forecasting another increase of 25 basis points – bringing it to 3.85% in April.

For the first time since May 2022, more than a third of panellists (38%, 16/42) believe the RBA will hold the cash rate on Tuesday.

Graham Cooke, head of consumer research at Finder, said the results were split.

"This is the most divided the panel has been since before the cash rate started to rise.

"More than 85% of economists have expected a cash rate increase every month since June 2022.

"This result of 62% is the softest forecast we have seen for an increase since then and could very well be the month the pressure stops mounting on Aussie homeowners."

Cooke said the panel has missed rate rises in the past, and household budgets are being spread thin.

"Just 1 in 5 experts expected a rate rise in May 2022 when the RBA started this rate rise marathon. Tuesday's decision really is an either-way bet.

"Currently, financial stress is at a 4-year high, with 4 in 5 Australians somewhat or extremely stressed with their financial situation," Cooke said.

Angela Jackson from Impact Economics and Policy said the RBA has a lot to weigh up this month, and the case for pausing is strong – however given actions from overseas banks, it would appear unlikely that the RBA will pause this month.

"Good chance [the RBA raises the rate] however this will be the final increase for a while," Jackson said.

Leanne Pilkington from Laing+Simmons said pausing the rate rise cycle would be the right move.

"People need a reprieve and in the housing market, buyers and vendors need to know where they stand with a degree of certainty," Pilkington said.

Beyond April, more than two-thirds of the panel (69%, 29/42) believe the RBA will hold the cash rate in May.

Australia is in a better position to handle a recession, most experts agree

In good news for Aussies, almost all experts who weighed in* (94%, 31/33) believe that if there were a recession this year, it would not be as bad as the recession of the early 90s.

Panellists attributed this to the banks being much better regulated now compared to the 90s, interest rates less severe and unemployment increasingly lower now.

Cooke noted one of the most interesting comments from NAB's Alan Oster when speaking at Finder's Cost of Living event was that the economic short term looked uncertain, but he was glad he lived in Australia.

"It seems most experts think Australia will bypass any global recession in 2023, much as it did in 2007," Cooke said.

Stella Huangfu from the University of Sydney said the recession in the early 90s was caused by the extremely high interest rates at that time.

"This is not the case now. Once the inflation has returned to the RBA's target range of 2–3%, interest rates will stabilise," Huangfu said.

Mark Crosby from Monash University said the starting point for unemployment is much lower, so any peak in inflation will be well below double-digit levels of the early 1990s.

Australian consumers are a bit more pessimistic when it comes to the chance of recession.

According to Finder's Consumer Sentiment Tracker, a monthly nationally representative survey of more than 1,000 Aussies, nearly 3 in 4 (70%) now believe a recession is likely to occur in the next 12 months, up from 50% in March 2022.

"There is clearly a disconnect in what the economists and general population think about the economy. Let's hope the experts are right," Cooke said.

Inflation is falling, but food and non-alcoholic beverages are still higher year-on-year

The monthly CPI figure fell to 7.4% from 8.4% in December 2022, but food and non-alcoholic beverage inflation was still 8.2% higher year-on-year.

The panel is split on the future of grocery prices – more than 1 in 2 of those who weighed in* (55%, 17/31) believe prices will not be cheaper by the end of the year, due to the persistence of supply chain problems and an uncertain global economic environment.

Cooke said the cost of living is putting an upward pressure on food prices, with many Australians having to forgo certain items to keep afloat.

"Food prices have been in flux due mainly to global cost increases, supply chain issues and weather events.

"Over 70% of Aussies have had to reduce spending on food in some form – but with the causes of inflation easing, we may see an improvement later this year," Cooke said.

Saul Eslake from Corinna Economic Advisory Pty Ltd said while prices of some items probably will decline over the 12 months to next January, there's no reason to think that the overall cost of groceries at supermarkets will decline over this period.

Stella Huangfu from the University of Sydney said in the past few months, we have seen the grocery price inflation drop significantly relative to other months.

"I do think we have seen the peak of inflation already," Huangfu said.

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

Here's what our experts had to say:

Anthony Waldron, Mortgage Choice (Increase): "I expect the Reserve Bank will raise the cash rate in April, joining the US Fed and other central banks around the world."

Tomasz Wozniak, University of Melbourne (Increase): "The weighted pooled forecasts from my monthly and weekly bond yield models indicate that April is likely to be the last month with increases in interest rates. The likely values for the forecasted cash rate target in April range from 3.53–3.76%. After this month, the predictions indicate a probable flattening of the cash rate level. The arrival of the new inflation data will be decisive regarding RBA's decisions in the longer horizon. My forecasts are available at"

Sean Langcake, BIS Oxford Economics (Increase): "At the March meeting, the RBA indicated further tightening was to come. Much has happened since then – especially in financial markets. But contagion fears have eased, and the RBA's view is that the Australian financial system is well insulated from developments overseas. Major domestic data releases have been sparse, but crucially the unemployment rate is back to 3.5%. Inflation remains too high and is still the main game when it comes to setting the cash rate."

Nalini Prasad, UNSW Sydney (Increase): "While previous increases in the cash rate are already having an effect on the economy, inflation is still high and the labour market is tight. Inflation is still a concern globally. This suggests that the RBA will tighten at its meeting on Tuesday."

Sveta Angelopoulos, RMIT (Increase): "The inflation figures are still too high, and although there is some suggestion of the economy slowing, it is still insufficient to halt the upward movement of the cash rate."

Alex Joiner, IFM Investors (Increase): "The data flow has not as yet deteriorated enough for the RBA to pause its policy tightening phase."

Andrew Wilson, My Housing Market (Increase): "10 consecutive rate rises have clearly failed to quell economic activity as forecast by the RBA with a booming economy and record low jobless, strong retail sales still rising and now capital city house prices rising again. Significantly more work for the RBA in prospect to bring inflation back to target range."

Matthew Greenwood-Nimmo, University of Melbourne (Increase): "Inflation is still too high and the RBA's priority is to bring it down and keep inflation expectations in check."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Increase): "At its last Board meeting the RBA foreshadowed that "further tightening of monetary policy would likely be required to ensure that inflation returns to target" – a softening of previous statements that "further increases'' (plural) in interest rates would be required to that end. The minutes of the last meeting included an observation that "it would be appropriate at some point to hold the cash rate steady", and that the case for doing so would be "reconsidered" at the April meeting. So it is possible that the Board may leave rates unchanged for the first time since the current tightening process began. But on balance, and noting the increases in rates by the Fed, the ECB and BoE over the past month, I suspect that the RBA Board will come to the view that the case for a "pause" at this meeting isn't sufficiently persuasive."

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

Angela Jackson, Impact Economics and Policy (Increase): "The RBA has a lot to weigh up this month, and the case for pausing is strong – however given actions from overseas banks, it would appear unlikely that the RBA will pause this month. Good chance however this will be the final increase for a while."

Harry Murphy Cruise, Moody's Analytics (Increase): "Inflation, though off its peak, remains bitingly high. Like a roll of twine wrapped in honey, price pressures are sticky and will take time to unwind. That will likely see the RBA push one last rate hike through the Aussie economy in April."

Stephen Miller, GSFM (Increase): "Inflation is still too high. The RBA haven't done enough to contain it."

Tim Reardon, Housing Industry Association (Increase): "Their previous statements suggest further increases. The economy remains robust, and demand for labour exceeds full employment. The lagged impact of the cash rate is obscuring the adverse impact on the wider economy."

Stella Huangfu, University of Sydney (Increase): "I expect the RBA will increase the cash rate by 25 basis points in April and then in June. The increase in June should be the last round of increasing cash rate. There is a clear sign that the economy has slowed down. The RBA does not want to take the risk of bringing the economy into a severe recession."

Mark Crosby, Monash University (Increase): "The rate decision this month is line ball, but one further rate rise before a pause is consistent with still elevated levels of inflation."

Cameron Kusher, REA Group (Increase): "Despite the banking issues in US and Europe we have seen both Central Banks and others press on with rate hikes aimed at taming inflationary pressure, I can't see why RBA would do anything other than hike again this month."

Mala Raghavan, University of Tasmania (Increase): "Though the monthly CPI indicator shows signs of slower growth in goods prices, the costs of essential items such as housing, food and non-alcoholic beverages are still way above the target rate. The ABS Living Cost Index (LCI) measures out-of-pocket living expenses incurred by Australian households. The LCI appears to be higher than the CPI and also highlights that households in the lowest wealth and income quintiles face significantly more financial stress than those in higher quintiles. Therefore, given the rising cost of living, the RBA is expected to tighten the monetary policy in April in its effort to tame inflation."

Peter Boehm, Pathfinder Consulting (Increase): "Despite what the RBA is indicating, I believe there will be one more rate rise before the bank considers a pause."

Jeffrey Sheen, Macquarie University (Increase): "After 10 cash rate increases in a row and the potential for financial system instability, the RBA needs to pause after a 25 bp rise in April. With expected lower than actual inflation, the real expected interest rate is now sufficiently positive for households and firms to assist the required disinflation. This final April increase will signal the RBA's confidence in the financial system at current rates."

Nicholas Frappell, ABC Refinery (Increase): "I think that the sudden shift in expectations around easing are overdone and that the RBA has unfinished work ahead of it."

Geoffrey Kingston, Macquarie Business School (Increase): "The Fed hiked this month, and this will probably force the RBA's hand. As the line in the David Bowie song says, it's too late to be late again."

Tim Nelson, Griffith University (Increase): "RBA will continue its tightening phase due to overarching concerns about inflation."

Stephen Halmarick, Commonwealth Bank (Increase): "One final rate hike before a pause."

Rich Harvey, Propertybuyer (Increase): "The inflation rate is still persistently high and the RBA has said it will use all means necessary to curtail aggregate demand to bring it down to imaginable levels. While the RBA cash rate is lower than other central banks around the world, the 10 successive rate rises are still yet to have full impact as many borrowers are on fixed rate loans till mid-year."

James Morley, The University of Sydney (Increase): "Despite the banking troubles internationally, the RBA is unlikely to pause just yet as they will want to do so in the context of more progress on bringing down inflation. However, the Q1 CPI release in late April may well provide some room for the RBA to pause in May, especially if international financial turmoil continues. Then I think there is some chance the RBA will start cutting in Q4, especially if there are indications of a recession through rising unemployment, weak global conditions, rising mortgage stress, and generally weak demand. It would, of course, help if the Q3 inflation data suggests many measures, including underlying, are coming down. Hence, I am suggesting the first cut would be at the November meeting when the Q3 data will be available."

A/Prof Mark Melatos, School of Economics, University of Sydney (Hold): "RBA might use recent bank instability as an excuse to pause rate hikes to get more clarity on the direction of the economy over the next couple of months. Inflation, especially the trimmed mean of the CPI, remains significantly above the RBA's target band. The RBA is still in catch-up mode with respect to matching their cash rate settings to the inflation reality. So RBA bias is still towards tightening over the rest of 2023 – unless a significant banking crisis develops."

Jakob Madsen, University of Western Australia (Hold): "RBA will be cautious to avoid any serious repercussions of higher rates."

Jason Azzopardi, Resimac (Hold): "I think we will see one more increase prior to pens down."

David Robertson, Bendigo Bank (Hold): "The RBA are well positioned to pause rate hikes in April, ahead of key inflation data to be released later next month. Recent offshore market volatility adds weight to the likelihood of a pause, but they will still need to maintain a tightening bias until inflation normalises."

Cameron Murray, University of Sydney (Hold): "Given that there are delays with the effect of interest rates, it makes sense for the RBA to wait in this new risky financial environment."

Noel Whittaker, QUT (Hold): "It's tough but I think it will hold. The minutes from their last meeting gave hints that increases might be paused this month, but added that it would depend on the prevailing circumstances at the time. I think they will pause now and increase rates next month."

Garry Barrett, University of Sydney (Hold): "I anticipate a pause to the sequence of increases to the cash rate due to uncertainty in international financial markets."

Malcolm Wood, Ord Minnett (Hold): "The RBA has tightened too aggressively, driving a domestic downturn. Inflation should turn much lower, allowing 2H23 rate cuts."

Craig Emerson, Emerson Economics (Hold): "The RBA would be wise to pause in the face of a possible financial crisis and ensuing recession in the United States and some other advanced economies."

Michael Yardney, Metropole Property Strategists (Hold): "We're clearly living in uncertain times and the Reserve Bank of Australia should pause its record-breaking run of interest rate hikes in April as it assesses the effect of the 10 rises it has already delivered. Consumer confidence has plunged to its lowest point in decades, homeowners and investors are being battered by the huge rise in their mortgage payments and business confidence is understandably low. But then the February unemployment figures indicated a robust Australian economy with the unemployment rate falling to 3.5%. On the other hand global markets have become unstable with news of UBS having to merge with international bank Credit Suisse to help it keep the doors open, along with the collapse of the Silicon Valley Bank and Signature Bank and this should tip the RBA in favour of a pause in rate hikes next month."

Evgenia Dechter, UNSW (Hold): "The RBA will consider recent developments and current data. Unemployment is still low but retail trade shows signs of slowdown. The January monthly CPI declined, if this trend is also observed in February, the RBA is likely to pause and observe."

Leanne Pilkington, Laing+Simmons (Hold): "The minutes from the March meeting indicate the RBA is considering pausing the rate rise cycle and we believe this would be the right move. People need a reprieve and in the housing market, buyers and vendors need to know where they stand with a degree of certainty."

Shane Oliver, AMP (Hold): "After 10 rate hikes in a row it's time for a pause, the RBA has said it will consider a pause at its next meeting, economic data is showing increasing signs of cooling activity and peaking inflation and banking turmoil has increased the risk of a global recession. So while it's a close call on balance we think the RBA will pause in April."

Mathew Tiller, LJ Hooker Group (Hold): "The lag between when the RBA increases rates and their full effect on the economy, signs that inflation has started to soften, uncertainty around the outlook for the global economy (including US banking issues) should all be enough reasons for the RBA to pause, take stock and evaluate the impact of the past 10 consecutive rate hikes on the economy."

Nicholas Gruen, Lateral Economics (Hold): "They have suggested they may want to pause in light of financial market instability."

Peter Munckton, Bank of Queensland (Hold): "The RBA will keep rates unchanged in April reflecting the increased uncertainty in financial markets. It will also allow them to assess the impact of the rate hikes to date."

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