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Finder’s RBA survey: 91% of experts confident the cash rate will rise

Posted: 1 July 2022 2:22 pm
News
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Homeowners can expect further hikes to their mortgage repayments, according to a new Finder poll.

In this month's Finder RBA Cash Rate Survey™, 32 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

The majority of panellists (91%, 29/32) believe the cash rate will change on Tuesday, while a third (34%, 11/32) believe there will be 4 rate increases in a row, with back-to-back cash rate increases in July and August.

Graham Cooke, head of consumer research at Finder, said this would be a tough pill to swallow for many.

"It's looking almost certain that Australian households will be faced with a triple-whammy of rate rises this year.

"This will raise the average annual mortgage repayment by over a whopping $5,000 – a huge burden for most families.

"While it's good news for savers, with the average account earning $420 extra in interest over the last few changes, it will be little compensation for mortgage holders," Cooke said.

Sarah Hunter, senior economist from KPMG, said it was clear another rate rise was on the horizon.

"The most recent comments from Governor Lowe and the June meeting minutes make it clear that the RBA are now proceeding with rate normalisation at a rapid pace, which suggests a further 50 basis point increase in the July meeting," Hunter said.

Shane Oliver of AMP said the cash rate at 0.85% is too low for an economy with a 3.9% unemployment rate and inflation on its way to 7% by year end.

"The RBA needs to continue raising rates for now to underline its commitment to returning inflation to its 2–3% target range and ensuring that inflation expectations remain low," Oliver said.

What a 50 basis point increase to the cash rate will cost mortgage holders

Almost two-thirds of experts (63%, 20/32) believe the cash rate will increase by 50 basis points in July.

Cooke said many homeowners would struggle to meet these higher payments.

"A 50 basis point rate increase will see the average Aussie homeowner forking out an additional $324 per month compared to what they were paying in May.

"That's a significant bump for those who are already feeling the cost of living crunch."

Cash rateAverage home loan rate*Average monthly repaymentAverage annual repaymentAverage annual increase
Apr-220.10%3.45%$2,727$32,728-
Jul-221.35%4.65%$3,151$37,816$5,088
(full rate rise applied)
Source: Finder, RBA. *Owner-occupier variable discounted rate. Repayments based on the average loan of $611,158 (ABS data analysed by Finder).

Despite rising interest rates, 3 in 4 of experts who weighed in* (75%, 12/16) believe the cash rate would have to increase to 3% or higher to push at least a third of households into mortgage stress.

In June, 1 in 4 (25%) Aussie homeowners said they struggled to pay their mortgage, up from 21% in May, according to Finder's Consumer Sentiment Tracker.

Economists agree with falling property price predictions

More than half of panellists believe that property prices will fall by 15–20% in both Sydney (56%, 10/18) and Melbourne (65%, 11/17) by 2025.

In Brisbane, Adelaide and Perth, at least 40% of panellists believe property prices will fall by 10% (Brisbane 47%, 7/15) (Adelaide 40%, 6/15) (Perth 40%, 6/15).

Cooke said house prices were likely to fall in the second half of 2022.

"Australians are obsessed with property, but home ownership has been a distant dream for many.

"How steeply prices fall will depend on how high interest rates climb and how quickly they get there," Cooke said.

Interestingly, more than 3 in 5 experts (63%, 12/19) believe that longer-term home loans will benefit home buyers.

Aussie workers bank on pay rise relief

Amid a cost of living crisis, many Australians are looking to their employers for some relief.

Despite backlash against the Fair Work Commission's increase to the minimum wage in June, almost all (95%, 20/21) experts agreed with the decision.

Most panellists noted the wage increase will benefit those on low incomes.

Michael Yardney of Metropole Property Strategists said those on the minimum wage need assistance.

"They have suffered most financially during COVID. Hopefully this does not create an inflation, wages, growth spiral," Yardney said.

Cameron Murray, research fellow of Henry Halloran Trust, The University of Sydney, said in a rich country like Australia, there is no clear reason that those with the lowest incomes should need to take a real income decline because of inflation.

"Indeed, even wage rises that match inflation are generally not sufficient to maintain the same after-tax income because of Australia's progressive tax and welfare system. Much higher wage rises are needed for that," Murray said.

A Finder nationally representative survey of 682 Aussie workers found 1 in 5 (21%) are expecting a larger wage rise this year than they received in 2021 to offset surging inflation.

Worryingly, 5% of Australian workers are expecting a decrease in pay despite cost-of-living pressures.

Because of inflation, do you expect more of a pay rise this year compared to last year?
No, I don't expect a pay rise at all44%
No, I expect a similar pay rise to last year30%
Yes, I expect a larger pay rise than last year21%
No, I expect my pay to decrease5%
Source: Finder survey of 682 Australian workers, April 2022

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

Here's what our experts had to say:

Tim Nelson, Griffith University (Increase): "Continued tightening to address rising inflation."

Sveta Angelopoulos, RMIT (Increase): "Inflationary pressures need to be addressed. Moving quickly and sharply in the short term will send very concrete messages to markets and may avoid longer-term pain down the track."

David Zammit, Mortgage Choice (Increase): "I expect the Reserve Bank to again raise the cash rate in July as it continues measures to normalise the cash rate and curb inflation. As home loan interest rates climb, borrowers are seeking better deals on their home loan, with Mortgage Choice home loan submission data showing a pick-up in refinancing activity during May."

Sean Langcake, BIS Oxford Economics (Increase): "The RBA have clearly signalled they are just at the beginning of their tightening phase. Slowing down to a 25 basis point rise makes little sense in light of the June hike."

Harry Murphy Cruise, Moody's Analytics (Increase): "The RBA has upped the ante on inflation and is working overtime to make up lost ground. But it's not just actual price rises that are cause for concern. Phil Lowe knows he only has a small window to tame expectations. And that will see the Board again go hard in July."

Tim Reardon, Housing Industry Association (Hold): "The cash rate remains expansionary and unemployment remains exceptionally low."

Nicholas Frappell, ABC Bullion (Increase): "Inflationary pressures remain in place and most indicators suggest that the economy remains in decent shape at this point in time."

Brodie Haupt, WLTH (Increase): "With continued uncertainty and rising pressure from inflation, I think it is likely there will be another rate rise this month."

Mathew Tiller, LJ Hooker Group (Increase): "The RBA is expected to continue to increase the cash rate until the strong inflationary pressures begin to subside. As such, I expect the RBA will lift rates multiple times over the remainder of 2022."

Cameron Kusher, REA Group (Increase): "Inflation is surging and the RBA have signalled that they are going to do whatever they can to reduce it, which means lifting the cash rate."

Alan Oster, Nab (Increase): "RBA still adjusting rates to slow activity and lower inflation"

Jonathan Chancellor, The Daily Telegraph (Increase): "They need to act decisively, not dawdle in their pursuit of increased rates so they then have the option to re-use the rate lever to avoid any recession."

Shane Oliver, AMP (Increase): "The cash rate at 0.85% remains too low for an economy with a 3.9% unemployment rate and inflation on its way to 7% by year end. The RBA needs to continue raising rates for now to underline its commitment to returning inflation to its 2–3% target range and ensuring that inflation expectations remain low."

Nicholas Gruen, Lateral Economics (Increase): "The RBA has been signalling its readiness to tackle inflation. Given the indebtedness of Australian households, it will be a difficult tightrope to walk."

David Robertson, Bendigo Bank (Increase): "The RBA has now committed to front loading rate hikes in response to the global inflation shock, so should increase rates by another 50 basis points in July. This will continue the path to a neutral cash rate of around 2.5% by November, before pausing to assess the impact on demand and on inflation."

Azeem Sheriff, CMC Markets APAC (Increase): "CPI released in July and October 2022, so expecting RBA to react to CPI numbers and adjust rates accordingly in July, August, September, November and December meetings to bring cash rate to 2.35%. RBA will monitor for Q1 '23 then when next CPI figures release in Apr for Q1, RBA will react again in May's meeting for next hike. Potentially 1 more in Q3 to bring cash rate to 2.75%. Anything further aggressive tightening more than 25bps could severely contract economy giving rise to fears of an AUS recession. GDP figures will also be on watch in September, December and March 23 which can significantly contribute to RBA's decision."

Sarah Hunter, KPMG (Increase): "The most recent comments from Governor Lowe and the June meeting minutes make it clear that the RBA are now proceeding with rate normalisation at a rapid pace, which suggests a further 50bps increase in the July meeting."

Leanne Pilkington, Laing+Simmons (Increase): "We all know further rate increases are coming. While the recent hikes have certainly impacted consumer sentiment, we believe a more modest increase is warranted this time around to provide time to understand the full economic impact of the May and June increases."

Noel Whittaker, QUT (Increase): "The reserve bank have been shouting it from the rooftops."

Dale Gillham, Wealth Within (Hold): "The 50 basis point rise in June was quite a shock to everyone and so I suspect the RBA will wait to see what effect it has prior to issuing any more rises."

Geoffrey Harold Kingston, Macquarie University (Increase): "RBA is finally biting the bullet."

Peter Boehm, Pathfinder Consulting (Increase): "The RBA has left itself no alternative but to increase the cash rate, and to increase it sharply. I would not be surprised to see the rate above 2.5% by year end and this will create what would have an otherwise been an avoidable shock to the economy, had rates been increased earlier and by smaller increments."

Mark Brimble, Griffith Uni (Increase): "Inflation pressure continues to grow and the need to normalise rates is evident."

Jeffrey Sheen, Macquarie University (Increase): "The anchor for inflation expectations needs to be re-established by the RBA demonstrating its commitment to its inflation target."

Jakob B Madsen, University of Western Australia (Increase): "Inflation too high."

Stephen Halmarick, Commonwealth Bank (Increase): "A global monetary policy tightening cycle is well underway."

Craig Emerson, Emerson Economics (Increase): "The RBA Governor has publicly stated so."

Saul Eslake, Corinna Economic Advisory (Increase): "My view reflects the RBA's heightened sense of urgency in getting its cash rate to at least 2.5%, and possibly higher, in order to give effect to its stated determination to get inflation down to its 2–3% target range."

Jason AZZOPARDI, Resimac (Increase): "Current levels are emergency levels only and combined with high inflation, there is no need for the RBA to move slowly."

Michael Yardney, Metropole Property Strategists (Increase): "The RBA is now "laser focused" on bringing inflation under control."

Cameron Murray, Henry Halloran Trust, The University of Sydney (Increase): "There is a bigger global context here. Other central banks are hiking consistently. Australia has similar inflation pressures. So the RBA will act in a way that is consistent with central banking norms."

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