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Cash rate expected to rise again on Tuesday

The odds of another cash rate rise at this month’s Reserve Bank of Australia (RBA) meeting remain high, with 88 per cent of experts tipping another hike is on the cards.

According to a Finder survey, 35 of the 40 experts, say the cash rate will increase 25 basis points on Tuesday, bringing it to 3.10 per cent in December.

Less than half of the experts (43 per cent) believe the RBA will then raise the cash rate in February.

AMP Capital’s Chief Economist Shane Oliver said a rate hike this month was highly likely with the risk of one more hike to 3.35 per cent in February.

“Still high inflation, strong jobs and wages data and the absence of an RBA meeting in January are likely to drive another 0.25 per cent hike in December to 3.10 per cent,” Dr Oliver said.

“But by the end of 2023 we expect weak growth and a sharp fall in inflation to drive the start of rate cuts.”

Real Estate Institute of Australia (REIA) President Hayden Groves said that after the latest CPI reading showed a slowdown to 6.9 per cent, the RBA should now look to pause interest rates.

“With signs that the CPI has peaked, it is time for the RBA to ease up on its interest rate hikes at its meeting next Tuesday,” Mr Groves said.

“There are lags between the RBA raising its cash rate and lenders passing on these increases to borrowers. 

“Further it takes many months for any shifts in household spending behavior to show up in economic data.”

“I urge the RBA to wait until next year and assess the lagged impact that past increases have had before taking any further action on interest rate.”

Mr Groves said he’s concerned there will be a significant number of borrowers that will be facing a sharp surge in their repayments next year.

“The RBA’s own research shows that nearly a quarter of home loans are fixed rate and will not need to switch to variable until well into 2023,” he said.

“This is when this cohort will see their payments increase and adjust their spending on other items.

University of Sydney, School of Economics, Associate Professor, Mark Melatos said the RBA needed to play catch up.

“Like most central banks, the RBA was slow to recognise the inflation threat and its policy settings need to catch-up to the inflation reality,” Associate Professor Melatos said.

“Moreover, the RBA’s hand is likely to be forced by increasingly aggressive tightening actions by other central banks. 

“This means the cash rate will likely need to be raised steadily in the near future with a likely pause early 2023 as the RBA assesses the impact of its tightening strategy.”

According to Finder, 35 per cent of homeowners said they struggled to pay their mortgage in November – up from 23 per cent at the start of the year in January.

Head of Consumer Research at Finder, Graham Cooke said a December rate rise of 25 basis points to 3.10 per cent would see homeowners paying hundreds more in interest per month.

“Australians with a $500,000 mortgage will be forking out almost $900 more per month compared to what they were paying in April,” Mr Cooke said.

“That’s a significant amount of extra money to pay every month.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.

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