RBA warns interest rates to remain high as inflation persists
Speaking at a recent economic forum, Governor Bullock said that it was premature to discuss rate cuts, stating that inflation remains the primary threat to household finances.
“If the economy evolves broadly as anticipated, the Board does not expect that it will be in a position to cut rates in the near term,” Ms Bullock said.
She warned that if high inflation became entrenched, the RBA would be forced to implement even higher interest rates, potentially leading to increased unemployment and recession risks.
Recent economic data has shown weak growth, with GDP expanding by only 0.2 per cent for the quarter, or 1 per cent through the year – the slowest growth rate outside the pandemic since the 1991 recession.
Bendigo Bank Chief Economist David Robertson said that given the state of the economy and lingering inflation, rate cuts are unlikely before 2025.
“As for when lower interest rates also add to household income, we continue to forecast rate cuts in 2025, with February or May the most likely months for relief, depending on quarterly inflation data – but there are two other variables to keep an eye on,” Mr Robertson said.
“One is the jobs market, which remains relatively strong despite the recent uptick in unemployment to 4.2 per cent, but a sudden loosening in what have been tight labour markets would impact the Reserve Bank’s timeline for rate cuts.
“Secondly, any market dislocation on financial markets could influence the RBA.
“Nevertheless, the transition from tightening cycles to easing cycles (and the impact of tight monetary policy) remains challenging and uneven.”
Mr Robertson said that Australia remains in a per capita recession, with household spending continuing to decline.
Discretionary spending has been particularly weak, falling by 0.2 per cent.
However, he predicted that the decline in economic growth, household consumption, and disposable income should reverse in the coming months, partly due to stage 3 tax cuts and electricity rebates.
Buyers Agent, Jack Henderson from Henderson Advocacy said that interest rates remaining high isn’t likely to impact demand from buyers.
“I don’t think it’ll have any negative impact at all,” Mr Henderson said.
“The marketplace is already quite buoyant, from what we’re seeing.
“Really good properties are selling really, really well, and the less desirable ones are struggling, which is pretty normal.
“If rates are cut, it’ll boost confidence in the market, but if they don’t, it won’t hurt much because people have already factored the current rates into their budgets, and no one’s gone broke.”
Mr Henderson said stock levels are still incredibly tight making it hard for buyers.
“There are plenty of buyers in the marketplace,” he said.
“It doesn’t feel like the people we serve are feeling the pinch.”
Abdullah Nouh from Mecca Property doesn’t think rates will fall and believes sentiment is still positive.
“I don’t believe consumers are expecting interest rates to drop before Christmas,” Mr Nouh said.
“The most recent data indicates a reduction in inflation and an increase in the unemployment rate.
“These two factors are good indicators for what might happen with interest rates.
“I expect interest rates to remain steady or potentially increase, but I don’t believe there is widespread expectation in the market that rates will decrease.”
Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.
