Finder’s RBA survey: 58% of economists expect a rate rise in 2022

Posted: 31 January 2022 11:57 am
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The nation's experts are split on whether the cash rate will rise before the end of the year, according to a new Finder poll.

In this month's Finder RBA Cash Rate Survey™, 36 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

While almost all panellists (94%, 34/36) expect a cash rate hold in February, more than half (58%, 21/36) are predicting a rise this year. Just 1 in 5 experts (19%, 7/36) expect it to happen in the first half of the year.

Graham Cooke, head of consumer research at Finder, said there had been a seismic shift in expectations of a rate rise in 2022.

"A rate rise this year has moved from an 'impossibility' to a 'most likely'.

"With some lenders indicating multiple rises to come, Australian borrowers who purchased over the last few years of rock-bottom rates may be in for a shock when their mortgage costs start to climb."

Annette Beacher of ausbiz said she was previously of the view that November 2022 would be appropriate for a rate rise.

"Now with inflation in the band and the unemployment rate reaching the RBA's target a year ahead of schedule, it's time to get moving," Beacher said.

Ben Udy from Capital Economics agreed, saying the RBA will end quantitative easing – a process where the central bank creates new cash to decrease, or ease, the cost of borrowing – in February.

"While the RBA has previously said that it would not raise rates until wage growth was at least 3%, we think the strength in underlying inflation along with the tight labour market will convince the Bank to hike rates first in August and lift rates to 1.25% by the end of 2023," Udy said.

Saul Eslake of Corinna Economic Advisory is among the group not convinced we will see a rate rise this year for 3 reasons.

"One, underlying inflation has only just entered the target band after more than 5 years below it, and remains lower than in most other advanced economies.

"Two, wage inflation is nowhere near the 3.5% the RBA has said it needs to be to be consistent with inflation being 'sustainably' within the target band.

"Three, the RBA has a looser inflation target than most other 'advanced' economy central banks," Eslake said.

How much average mortgages will rise when rates do

Almost all experts (96%, 23/24) who weighed in* believe that variable rates have hit rock bottom, and will only go up from here.

"The days of sub-2% home loans are almost behind us, and may never return. If you are in a position to lock on a very low rate with your current lender, or by switching, there has never been a better time to do it," Graham Cooke said.

Westpac is expecting the RBA to raise the cash rate 6 times in the next 2 years, starting in August this year.

This would bring the official cash rate up from 0.10% at present to 1.50% in 2 years' time – a jump of 1.4% on what homeowners are paying now.

On a $500,000 home loan, a rate hike from 2.00% to 3.40% would cost homeowners $369 more per month or $4,428 more per year.

Mortgage valueCurrent monthly repayment at 2.00%Future monthly repayment at 3.40%Difference per month/year
$300,000$1,109$1,331$222/$2,664
$500,000$1,849$2,218$369/$4,428
$750,000$2,773$3,327$554/$6,648
$1,000,000$3,697$4,435$738/$8,856
Source: Finder's home loan repayment calculator

Cooke said the recent economic environment had prompted many Australians to buy beyond their means.

"It's worth using a home loan calculator to see how much your repayments will cost you when interest rates inevitably rise.

"Not all Aussies have an extra $300 a month or more laying around for their mortgage.

"If a rate rise would put too much pressure on your budget, it's worth considering a fixed loan."

Overall economic sentiment is high, but inflation could be a problem

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.

Interestingly, overall positive economic sentiment has remained high this month, peaking at 32%.

"This is mainly due to the increase in positivity towards wage growth and employment," Cooke said.

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However, half of experts (52%, 13/25) who weighed in believe that inflation will become a problem in Australia in the coming year.

Tom Devitt of the Housing Industry Association noted inflation was already a problem for households and businesses in terms of pressures on housing affordability, construction costs and fuel prices

"It is a problem for policy makers (especially in an election year), but not yet a problem for the RBA because it isn't entrenched beyond fuel and housing costs."

Nicholas Gruen of Lateral Economics said the problem wasn't that inflation will be particularly high.

"However, tackling it will be very difficult to manage given the debt overhang."

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

Here's what our experts had to say:

Nicholas Frappell, ABC Bullion: "The labour market is more resilient, and inflationary pressures more persistent, suggesting that the RBA may join other central banks in pivoting to a tighter policy sooner that was anticipated in mid 2021."

Shane Oliver, AMP: "The economy is running stronger than expected, unemployment is likely to push below 4% and this will drive an acceleration in wages growth to a 3% greater pace in the second half – meeting the conditions for an RBA rate hike later this year. The set back to growth from the Omicron wave is looking modest with new cases already slowing."

Annette Beacher, ausbiz: "I was previously of the view that November 2022 would be appropriate, but now with inflation in the band and the unemployment rate reaching the RBA's target a year ahead of schedule, it's time to get moving."

David Robertson, Bendigo Bank: "Strong employment data and demand for labour bodes well for wages growth in 2022, which should also drive core inflation higher. The RBA is still likely to increase rates later in the year, although August is now in view rather than November, assuming the Omicron wave subsides by the end of summer, helping tourism, hospitality and the services sector."

Sean Langcake, BIS Oxford Economic: "There is less spare capacity in the labour market entering 2022 than the RBA had previously expected. Moreover, underlying inflation pressures are stronger, boosted by housing construction costs. Taken together, their rate hike cycle will be brought forward compared to their earlier guidance."

Ben Udy, Capital Economics: "The surge in inflation and plunge in the unemployment rate highlights the strength in the Australian economy. The RBA will therefore end QE in February. While the RBA has previously said that it would not raise rates until wage growth was at least 3%, we think the strength in underlying inflation along with the tight labour market will convince the Bank to hike rates first in August and lift rates to 1.25% by end-2023."

Peter Boehm, CLSA Premium: "The current level of interest rates is not sustainable and does not reflect the present economic realities nor what's on the horizon. Inflation, wage pressures and the fact that other developed nations have and will start to move interest rates up means Australia will inevitably follow. It is likely interest rates will remain on hold until after the federal election because the election outcome will be a major determinant on business and consumer confidence and hence the economic outlook."

Saul Eslake, Corinna Economic Advisory: "Notwithstanding market pricing, I'm not persuaded the RBA will raise rates this year. One, underlying inflation has only just entered the target band after more than 5 years below it, and remains lower than in most other advanced economies. Two, wage inflation is nowhere near the 3.5% the RBA has said it needs to be to be consistent with inflation being "sustainably" within the target band; Three, the RBA has a looser inflation target than most other 'advanced' economy central banks."

Craig Emerson, Emerson Economics: "The RBA won't increase the cash rate until wages are sustainably growing strongly. Further, it will want the exchange rate to be a filip to Australia's international competitiveness."

Mark Brimble, Griffith University: "Uncertainty continues to dominate and the underlying economy (ex-COVID supply and energy pressures) needs support and will continue for some time."

Tim Nelson, Griffith University: "Inflationary pressures are building. Energy prices globally may continue to place pressure on inflation depending upon geopolitical pressures."

Tom Devitt, Housing Industry Association: "It will take time for wage and inflation pressures to become entrenched, beyond current pressures that seem to be mostly contained to fuel and housing. There is also still a great deal of uncertainty in the global economy in relation to the pandemic, financial security and geopolitical unrest."

Angela Jackson, Impact Economics and Policy: "The economic fundamentals will require an increase by the end of the 2022 – low unemployment, strong inflation and strong growth – keeping rates at 'ultra' low levels will not be sustainable."

Leanne Pilkington, Laing+Simmons: "The real estate market has started the year positively and the coming weeks will see more listings and an increase in transactions, though price growth appears to have moderated. Nevertheless, a stable real estate market is a vital contributor to the economy and the current interest rate setting supports this stability."

Nicholas Gruen, Lateral Economics: "I think the bank will act sooner than they said they'd act. Like stocks, the collective opinion of the "Very Serious People" often overshoots. It overshot timidness in cutting rates – which put lead in our recovery from the GFC for years. And I've been expecting overshooting on the other side now for a while. But who knows?"

Mathew Tiller, LJ Hooker: "Despite rising inflation and falling unemployment, the dampening effect that the Omicron wave is having on the economy will see the RBA hold the cash rate steady until the economy shows steady and consistent growth."

Geoffrey Harold Kingston, Macquarie University: "The date will be earlier than generally expected due to bad inflation numbers from the US."

Jeffrey Sheen, Macquarie University: "RBA is committed to start increasing when permanent inflation is above the target range. After many years of undershooting the target, I believe the RBA should not and probably will not raise the cash rate until 2023."

Stephen Koukoulas, Market Economics: "Inflation and wages pressure mean the current 0.1% cash rate is no longer needed. We need to see the RBA delivering a series of hikes through 2022."

Michael Yardney, Metropole Property Strategists: "The RBA will wait until wages growth and inflation remain within their desired range – there are still obstacles ahead."

Mark Crosby, Monash University: "The Fed is expected to raise rates soon, and several times in 2022. The RBA will not be able to hold off, and inflation above 3% will be confirmed by mid year."

Julia Newbould, Money Magazine: "I think that global inflation will start affecting Australia in the next few months and the RBA might move before they previously announced."

Susan Mitchell, Mortgage Choice and Smartline: "I expect the cash rate to remain on hold in February, but there is still considerable movement in the home loan interest rate market. Rising inflation has seen banks lift fixed rates considerably over the last few months, and there is growing speculation that the RBA Board may be forced to raise the cash rate in the second half of this year. Borrowers who haven't had their home loan reviewed in the past 12 months should consider speaking to their broker or bank to ensure they're getting a competitive rate on their loan."

Dr Andrew Wilson, My Housing Market: "Consistent higher wages growth set to remain below RBA target through 2022."

Rich Harvey, Propertybuyer: "RBA have said no rises till inflation and wages rise significantly."

Noel Whittaker, QUT: "This is such a tough call – but everybody knows rates will be going up soon and I can't see what the reserve bank can gain by holding any longer."

Cameron Kusher, REA Group: "While most people are bringing forward their rate hike increases and obviously CPI well and truly beat consensus. I still think the RBA will take a slow approach to hiking rates."

Jason Azzopardi, Resimac: "Don't expect both inflation and wage growth to remain sustainably in target ranges."

Christine Williams, Smarter Property Investing: "Property prices need to settle as wage growth is not inline with living and housing cost."

Clement A Tisdell, The University of Queensland: "I think interest rates will rise due to inflation rates in the USA."

Mala Raghavan, University of Tasmania: "Though RBA Governor Philip Lowe assured that the board is not expecting to increase the cash rate till 2024 due to rising inflationary pressure, many analysts predict the rate hike might happen sooner, probably in late 2022. However, the RBA will not act hastily given (i) the uncertain global economic environment and (ii) inflationary pressure is primarily driven by supply disruption rather than demand-driven. There is a possibility of a rate hike around mid-2023."

Jonathan Chancellor, Urban.com.au: "Despite all the economist excitement at above expectation CPI, the economy is going to face another bumpy year so the RBA will hold off until 2023 with their first rate rise."

Dale Gillham, Wealth Within: "The high inflation we are currently facing is not a major concern as it is being driven by a small area of our economy, caused by the current COVID situation and the resulting supply chain issues."

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 respondents: Jakob B. Madsen, University of Western Australia. Bill Evans, Westpac.

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