RBA interest rates timeline: What economists are forecasting

Governor of the Reserve Bank of Australia, Michele Bullock. Picture: Martin Ollman

Australian homeowners are staring down a bleak Christmas as the RBA looks poised to keep the cash rate on hold at its upcoming board meeting today, but one expert has flagged the possibility of a shock rate hike.

The consensus from economists and banks is that high inflation will scupper any chance of another interest rate cut and many are now predicting a new cut, if it comes at all, will occur over February.

But property economist Andrew Wilson said the argument for the RBA to “take back” one of this year’s 0.25 per cent interest rate cuts could grow stronger if electricity prices continued to soar.

Trimmed mean inflation, which the RBA views as the most accurate measure, was 3.2 per cent over the year to September, above the RBA target band of 2-3 per cent.

AMP chief economist Shane Oliver said the inflation uptick meant a Melbourne Cup Day rate cut was improbable, but a weakening jobs market also kept the door open for a cut in a few months’ time.

MORE: Worst RBA fears realised after Aus home prices go ballistic

Home buyer demand has been rising since rates were cut. Picture Thomas Lisson

“The high reading for trimmed mean inflation will keep the RBA on hold in November, but (we) still expect high unemployment and slower inflation to drive a cut next year,” he said.

Geoffrey Kingston, professor at the Macquarie University Business School’s department of economics, said another cut was still on the cards but the end of the rate cutting cycle was now in view.

“(The RBA’s) initial response to emerging stagflation will probably be to keep rates on hold,” he said. “Around the middle of next year there will be a cut in response to high unemployment.

“Around the end of next year, however, we may see the beginning of another tightening cycle.”

MORE: Bank’s brutal reaction to couple’s loan plea

AMP chief economist Shane Oliver said higher inflation meant a November rate cut was unlikely.

A Finder.com.au survey of 35 economists and property experts revealed all but five expected the RBA to hold rates at its Melbourne Cup Day board meeting.

A third of the economists polled predicted a cut in February, while two thirds predicted a cut at some point between February and May.

Some families may struggle to wait till next year. A recent survey of household spending revealed mortgage stress levels have been steadily rising in some states despite previous interest rate cuts this year.

Part of the reason is that other living costs have surged and the relief offered by this year’s three rounds of rate cuts was insufficient to make up for higher electricity, groceries and insurance costs.

The surveys from research group Digital Finance Analytics showed the biggest spikes in NSW and WA. Some 51.2 per cent of NSW property owners were in “mortgage stress” – spending an unsustainable amount of their income on repayments.

This was up from the 49.1 per cent reported to be in mortgage stress at the start of the year – before this year’s three cuts. The numbers were close to identical in WA.

Credit reporting agency Illion also revealed that families were increasingly turning to credit cards and other forms of personal loans to make up for shortfalls in their incomes.

Rate cuts have coincided with a shortage of homes for sale and rising prices, which have made it harder for new buyers to enter the market. Picture Thomas Lisson

Digital Finance Analytics data scientist Martin North observed a growing split in the fortunes of homeowners, with most struggling, but others “with plenty of cash flow”.

“We see a split between the two cohorts,” he said, noting interest rate cuts had also fuelled steep rises in the amount of equity held by some homeowners.

PropTrack data showed the average value of detached Sydney houses ballooned by $120,000 over the past year, with the average value of houses in some eastern suburbs growing by double that.

Sydney homeowner Mark Lawrenson recently refinanced his home loan to save money and said a rate cut would have helped.

“We are reasonably cautious with our finances so we are always careful not to overextend ourselves,” he said.

“We of course would prefer for rates to come down … It’s always an expensive period coming up.”

Their mortgage broker Richard Brown of Mortgage Choice-Epping said banks were offering good deals for refinancers and many homeowners could get relief by negotiating a new rate with banks before an RBA move.

– With reporting by Kaylee Cranley