Hike rates

RBA has ‘little choice’ but to raise rates in September

The Reserve Bank of Australia looks set to raise the official exchange rate at the September meeting with persistently high inflation, leaving it with “little choice.”

According to a new Finder survey, 97% of experts predict another rise in cash rates this week, with 64% expecting the RBA to hike rates by 50 basis points.

However, some relief could be in sight for borrowers, as the majority of experts (69%) expect the RBA to hold the cash rate stable next in October.

Finder financial expert Richard Whitten said a growing number of homeowners are already feeling the pinch of rising interest rates.

“A fifth consecutive cash rate hike will be a heavy burden for many households who are already struggling with serious budget pressures,” Mr. Whitten said.

“That could cost an average mortgage holder $9,608 more per year than they were paying in April.”

QIC chief economist Matthew Peter said interest rates will continue to rise as central banks around the world continue their fight against inflation.

“The RBA is now committed to reducing inflation, like most other central banks,” Mr Peter said.

“The Jackson Hole statements left the RBA no choice but to raise rates another 50 basis points at their September meeting, followed by another 50 basis point hike in October. “

Bendigo Bank head of economics and market research David Robertson said another rate hike was imminent.

“Another 50 basis point rise in the RBA rate in September will bring us closer to a neutral cash rate, before likely a quarter percent increase in October and November,” Robertson said.

“The RBA will remain on a tightening bias until core inflation is back near target, to try to minimize shock risks to global inflation.”

Mr Whitten said the expected rate hike would be bad news for many homeowners.

“Mortgage repayments are already significantly higher than they were earlier this year,” he said.

“A 50 basis point rate hike will see the average Australian homeowner pay an additional $801 a month compared to what they were paying just five months ago.

“Borrowers who took out fixed-rate home loans before the rate hike started won’t notice a difference right away, but they’ll be in for a real shock once that rate stops and they’re looking at a cliff. fixed rate.”

Rising mortgage costs have already seen nearly one in four homeowners (24%) struggle to pay their mortgage costs in September according to Finder’s Consumer Sentiment Tracker.

At the same time, rising interest rates are likely to continue to have a negative impact on house prices.

The majority of experts estimate that property prices will fall by 5-10% by the end of 2023 in Sydney (81%), Melbourne (85%) and Brisbane (74%).

However, most panelists predict either no change or a drop of just 5%, in Perth (72%), Adelaide (67%), Canberra (72%), Hobart (56%) and Darwin (78%). hundred).

While weak house prices are negative for homeowners, research shows nearly a third of Australians (30 per cent) hope falling house prices could help them get their foot on the road. real estate scale.

That figure jumps to 61% among Gen Z Australians and 39% among Millennials.

Mr Whitten said rising interest rates made servicing a mortgage more expensive for landlords and harder for investors to make a profit on rental properties.

“It has a natural effect on the price people are willing to pay for a house,” he said.

“Unless you’re thinking of selling your home, you don’t need to pay much attention to falling house prices.

“In the long term, property remains a great way to accumulate wealth.

“If you’re in a position to buy, the next 6-12 months could be a good opportunity to get a better deal on your dream home – as long as you can afford to pay off your home loan as rates rise. .”

As inflation continues to eat into the pockets of average Australians, it has been suggested that price controls could be a way to limit rising costs.

According to the poll, the majority of experts (82%) are not in favor of the government introducing price controls on energy or food.

The head of investment strategy and economics and chief economist at AMP, Dr Shane Oliver, said price controls were not working.

“They will just keep demand high relative to supply and lead to shortages,” Dr Oliver said.

“One-off taxes on coal and gas producers and using them to support low-income people would be a better solution, but even that is cumbersome if not managed properly.

Lecturer in macroeconomics at the University of Tasmania, Mala Raghavan said she was against the government’s introduction of energy price controls.

“However, I would welcome price controls on essential food items to ease cost of living pressures,” Ms Raghavan said.