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Finder’s RBA survey: All experts predict another cash rate rise

Posted: 29 July 2022 2:37 pm
News
Australian money_GettyImages_1800x1000

As soaring inflation and the cost of living continue to bite at household budgets, both homeowners and renters should brace for more, according to Finder.

In this month's Finder RBA Cash Rate Survey™, 26 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

While all panellists (26/26, 100%) are confident the cash rate will change on Tuesday, the majority (88%, 23/26) are predicting another increase of 50 basis points – bringing the cash rate to 1.85% in August.

Graham Cooke, head of consumer research at Finder, said money was already tight for many Australians.

"With inflation skyrocketing to 6.1% – its highest level in more than 2 decades – many homeowners will be hit with a fourth hike to their mortgage.

"This could cost an average mortgage holder a whopping $7,300 extra per year compared to what they were paying in April.

"With petrol, groceries, energy and travel all costing more, this sting will be especially painful to many families who are cutting it fine right now," Cooke said.

Shane Oliver of AMP said a fourth rate rise was coming.

"Unemployment at 3.5% is well below the full employment level of unemployment, inflation is still rising and the RBA needs to cool demand and keep inflation expectations down so another rate hike is certain," Oliver said.

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

Cooke said the anticipated rate rise will be a burden for many homeowners.

"A 50 basis point rate increase will see the average Aussie homeowner forking out an additional $610 per month compared to what they were paying 4 months ago."

Cash rateAverage home loan rate*Average monthly repaymentAverage monthly increaseAverage annual repaymentAverage annual increase
Apr-220.10%3.45%$2,727$32,728
Jul-221.35%4.65%$3,151$424$37,816$5,088
(current)
Aug-221.85%5.15%$3,337$610$40,045$7,317
(full rate rise applied)
2.50%2.50%5.85%$3,605$878$43,266$10,538
(predicted peak)
Source: Finder, RBA. *Owner-occupier variable discounted rate. Repayments based on the average loan of $611,158 (ABS data analysed by Finder).

Almost 1 in 4 (24%) Aussie homeowners said they struggled to pay their mortgage in July, up from 21% in May, according to Finder's Consumer Sentiment Tracker.

Following the expected fourth rate rise in a row, two-thirds of experts (65%, 17/26) believe the RBA will hold the cash rate in September.

The majority who weighed in* (83%, 19/23) expect the cash rate to peak at 2.50% or higher, with 59% (13/22) agreeing it will peak in 2023.

Pressure is mounting for Australian renters

The Domain Rental Report shows median rental asking prices have increased 12% across capital cities in June compared to last year.

Worryingly, more than half of panellists believe that rental prices will increase by 5% or more by the end of 2022 in Sydney (62%, 8/13), Melbourne (67%, 8/12) and Brisbane (55%, 6/11).

In Adelaide (55%, 6/11) and Perth (55%, 6/11), more than 1 in 2 experts believe rents will increase by at least 5%.

Cooke said renters across the country were doing it tough.

"We're hearing stories of applicants offering hundreds of dollars more per week than the asking price just so they have somewhere to live.

"If you can't afford your rent, reach out to your property manager and see if you can come to an agreement with your landlord.

"Slash all unnecessary expenses and do an emergency audit of all utilities to see where you can save money on things like energy bills and insurance."

In June and July, a staggering 40% of Aussie renters said they struggled to pay their rent, according to Finder's Consumer Sentiment Tracker – up from 32% 12 months prior.

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

Average positive sentiment across these metrics has fallen sharply in the last month.

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Inflation will get worse before it gets better

Australia's inflation rate has risen yet again to 6.1%, up from 5.1% in the March quarter.

However, 3 in 4 panellists (76%, 16/21) say that CPI inflation will continue to increase and reach 6.5% or higher in the current cycle.

More than half of panellists (52%, 11/21) forecast CPI inflation to reach 7-8% by the end of 2022.

David Robertson of Bendigo Bank said inflation is likely to continue to rise as the global supply challenges (energy and a range of commodities) remain in place.

"Although by year-end, these should start to moderate, and demand will have fallen to a degree by then due to rising interest rates," Robertson said.

Mark Crosby of Monash University said that great uncertainty lay around the ongoing impact of the Ukraine war.

"This could see inflation and energy prices remain elevated into 2023," Crosby said.

However, Cameron Murray from the Henry Halloran Trust, The University of Sydney said the factors at play in global inflation were beginning to unwind, with commodities broadly falling.

"The tightening of monetary policy in the US and elsewhere will also cool global demand, and I think the catch-up spending from COVID on housing and goods is unwinding as services and travel take over," Murray 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 (Increase): "The RBA will pause after an increase in August to observe the outcome. The increases in rates will take 12 to 18 months to impact inflation and unemployment. If combined with tighter fiscal policy settings, this could be sufficient to bring this inflationary cycle to an end."

David Robertson, Bendigo Bank (Increase): "The RBA are now very focussed on returning quickly to a 'neutral' official cash rate and have estimated that neutral is around 2.5% to 3%. Depending on further inflation and jobs data, the cash rate should approach this level steadily by year-end."

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

Mathew Tiller, LJ Hooker (Increase): "With the unemployment rate at a 50-year low and ongoing strong inflationary pressures, the RBA will continue to lift the official cash rate until such time as they feel they have inflation under control."

Malcolm Wood, Ord Minnett (Increase): "The RBA should pause after such a rapid tightening cycle in 4 months to see the impact on the consumer and given global uncertainty."

Stephen Halmarick, Commonwealth Bank (Increase): "Tight labour market and rising inflation."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Increase): "I infer from Governor Lowe's recent comments that the RBA intends to lift its cash rate to somewhere around its estimates of 'neutral' by the end of this year – and for my own part, I think it needs to do at least that."

Noel Whittaker, QUT (Increase): "The RBA has almost promised an increase."

Sarah Hunter, KPMG (Increase): "The data has continued to indicate that momentum in the economy was strong through Q2, with the labour market tightening further and anecdotal evidence continuing to emerge of strengthening wages growth. Against this backdrop, both Governor Lowe and Deputy Governor Bullock have signalled in recent speeches that they expect the Board to continue raising the cash rate to a significantly higher level than it is at the moment. With the data continuing to surprise on the upside, a 50bps increase is more likely than the 'standard' 25bps."

Nicholas Gruen, DYSCALL PTY. LIMITED (Increase): "We are in uncharted waters, not improved by those making the decisions seeking to reassure us that they know what they're doing. They don't and no one does. But then we've always been comfortable with experts' overconfidence. As Daniel Kahneman says, 'we encourage it'."

Leanne Pilkington, Laing+Simmons (Increase): "The expectation is that rates could be around the 3% mark by year's end. The market is looking for some degree of certainty in this area and this includes property buyers and sellers who typically become more active in spring."

Rich Harvey, Propertybuyer (Increase): "The RBA has indicated it is seeking to normalise interest rates as quickly as possible with several short sharp moves upwards to counteract steeply rising inflation. However, it may need to take a breath and pause more rapid rates until it gets an indication of how quickly this is slowing the economy."

Tim Nelson, Griffith University (Increase): "RBA has indicated it will continue to increase rates to reduce inflationary pressure."

Shane Oliver, AMP (Increase): "Unemployment at 3.5% is well below the full employment level of unemployment, inflation is still rising and the RBA needs to cool demand and keep inflation expectations down so another rate hike is certain."

Sean Langcake, BIS Oxford Economics (Increase): "RBA communications this week have emphasised their commitment to tackling inflation. Moreover, they have expressed the view that households are relatively well-placed to bear the burden of higher interest rates. Taken together, we see more rate hikes before the RBA pause to assess how the economy is responding to higher rates."

Mark Crosby, Monash University (Increase): "The RBA is well behind where rates should be. After 2 more 50 bp moves, it will be time for a pause to wait for the impacts of recent rises."

Geoffrey Kingston, Macquarie University (Increase): "Catch up with elevated inflation."

Nicholas Frappell, ABC Bullion (Increase): "The RBA state that the cash rate remains very low for an economy with 'a tight labour market facing a period of high inflation'. The RBA will seek to keep inflation expectations anchored via higher rates."

Peter Boehm, Pathfinder Consulting (Increase): "The RBA has already signalled its intent and will undoubtedly follow the lead of other central banks which have increased their interest rates, in some cases by material amounts. I believe we could be looking at a cash rate of around 2.5% by the end of the calendar year. This means there will need to be some big increases between now and then and this raises in my mind, the possibility of recession. Interest rate increases are unlikely to address the causes of inflation which are largely attributable to events occurring overseas and which are being imported into the Australian economy. Personal budgets are under severe pressure right now and I can see a scenario where RBA action could break them. Further, wage increases across the broader economy will not help – they will add to inflationary pressures which may result in business downsizing or exiting the market. It is a vicious circle. The light at the end of the tunnel? The likely economic contraction resulting from significant rate increases may see the RBA actually reduce rates next year to help reinvigorate the economy. In the meantime, though, it's a tough road ahead for most Australians, especially those with a mortgage."

Jason Azzopardi, Resimac (Increase): "Inflationary and wage pressures continue."

Mark Brimble, Griffith University (Increase): "Pressure is building for short-term inflation and the RBA, given criticism, will want to try to get ahead to this and dampen demand. I think it will be .50 or .65."

Dale Gillham, Wealth Within (Increase): "The RBA seem to be hell-bent on pushing the interest rates up to what they consider to be normal levels as fast as they can. They seem to want to incrementally raise them until they get to where they want them, rather than wait to see if recent rises slow inflation down."

Jakob B Madsen, University of Western Australia (Increase): "To combat the high inflation."

Cameron Murray, Henry Halloran Trust, The University of Sydney (Increase): "Inflation seems to be still a problem, and unemployment is extremely low. This should be sufficient for the Bank to continue its tightening path."

Michael Yardney, Metropole Property Strategists (Increase): "Unemployment has now fallen to a 48-year low of 3.5 per cent and while many see this as a good thing, the stunning June jobs data all but guarantees the Reserve Bank of Australia will lift the official interest rate by at least 0.5 percentage point again in August, and possibly even by 0.75 percentage points."

Cameron Kusher, REA Group (Increase): "We get the latest CPI release later this month and the expectations are that CPI will rise further, necessitating a further increase to the cash rate."

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