RBA interest rate rise warning as inflation persists

Sophie Foster

Updated 6 May 2024, 9:37am

First published 6 May 2024, 9:33am

Struggling families hoping for interest rate relief this year have had their hopes dashed with experts warning the RBA may re-enter a hiking bias as high inflation stubbornly persists.

No interest rate cuts are now expected in 2024 – a major shift from predictions early this year of at least two cuts this year – after stronger than expected Q1 24 inflation at 3.6 per cent, and concern over upcoming impacts off wage rises, tax rate cuts and major government spending.

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Economist Saul Eslake of Corinna Economic Advisory – who’s on the advisory panel of the Australian Parliamentary Budget Office – said the March quarter Consumer Price Index data “should have put paid to whatever hopes others had that the RBA might cut rates this year”.

“The RBA was later than its peers in starting to raise rates, and has raised them by less than its peers – it stands to reason that it will therefore be later than its peers to start cutting rates,” he said. “Especially when you also factor in (as the RBA will have done) that Australian households will be getting tax cuts equivalent (in terms of their impact on aggregate household cash flows) to two 25bp rate cuts from 1st July”.

REA Group director of research Cameron Kusher warned RBA could keep its powder dry for a possible increase in interest rates if it doesn’t see inflation under control.

“I think the RBA will re-enter a hiking bias in the latest minutes due to the stronger than anticipated CPI numbers but I don’t see them hiking yet. Equally the strong CPI and the looming tax cuts, plus whatever is announced in the federal budget is likely to push rate cuts out further.”

Pete Wargent of AllenWargent Property Buyers said the “most likely scenario is on hold throughout all of 2024. Markets are leaning in that direction too.”

“Inflation is going to take quite a long while to get back down to target. We’ve plucked the low-hanging fruit to get down to 3.6 per cent, but the last leg of the journey could prove to be hard work,” he said.

He said they were seeing a bit more caution from homebuyers now, with some investors finding cashflow hard work and some selling up.

“Brisbane and Perth are suffering from stock shortages so there is still quite a high level of enquiry, despite all of the above,” he said, but expected any buying frenzy driven by hopes of rate cuts to now be put off into 2025.

The Finder RBA Cash Rate Survey found all 36 experts and economists expect RBA to hold at 4.35pc in May, with head of consumer research Graham Cooke warning “the inflation rate is the one number the RBA is most influenced by, so it’s unlikely we’ll see a rate cut until at least December, if not later”.

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The ASX 30 Day Interbank Cash Rate Futures was on Friday showing a 3 per cent expectation of an interest-rate increase to 4.6 per cent come Tuesday’s Reserve Bank board meeting, but markets and experts widely expect the official cash rate to hold at 4.35 per cent where it has sat since November.

RBA data shows the last time interest rates were this high was over 12 and a half years ago – from December 2011 to April 2012 when it was 4.25pc after falling from 4.5pc in November 2011.

Housing Industry Association chief economist Tim Reardon warned ongoing strong population growth, very low unemployment, elevated rental price growth and housing costs would keep preventing the country returning to the 2 to 3pc inflation target.

Harry Murphy Cruise of Moody’s Analytics expects inflation to end 2024 at 3.2pc and not return to the top of RBA’s target band until the first half of 2025.