Experts predict another cash rate rise from the RBA

There’s likely more pain ahead for borrowers with 97 per cent of experts expecting the Reserve Bank of Australia to hike the cash rate at the November meeting.

According to Finder RBA Cash Rate Survey, 38 of the 39 experts interviewed believe the cash rate will change on Tuesday, with 90 per cent predicting a 25 basis point increase to 2.85 per cent.

While most experts feel the RBA should be raising the cash rate to combat inflation, 21 per cent disagree with any increase and say the RBA should instead hold the cash rate steady.

University of Sydney Associate Professor Mark Melatos said record high inflation means the RBA will be forced to continue raising the cash rate.

“Inflation is significantly above the RBA’s target band and likely to increase further, notwithstanding declining oil prices and an increasing risk of global recession,” Professor Melatos said.

“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.” 

Professor Melatos said the RBA’s hand is likely to be forced by increasingly aggressive tightening by other central banks. 

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

AMP Capital’s Chief Economist, Shane Oliver said he expects further rate rises from the  RBA.

“Inflation remains an ongoing problem, demand is still strong and the RBA has signalled likely further rate hikes ahead,” Dr Oliver said.

Chief Executive Officer and Director of Laing+Simmons, Leanne Pilkington said the rate will rise before the horses run at the Melbourne Cup.

“While there’s a good chance the RBA will raise rates again on Cup Day, the case for month-on-month increases is weakening,” Ms Pilkington said.

“At some stage soon, mortgage holders will need a reprieve, as larger repayments are already having a significant impact on household budgets.”

Head of Consumer Research at Finder, Graham Cooke said a seventh consecutive rate hike will be a tough burden for many households.

“The current series of rate hikes has added almost $9000 to the annual cost of a $500,000 mortgage,” Mr Cooke said.

“Another 25-basis-point hike will push that cost up to near $10,000.

“The RBA has been crystal clear that its top priority is to tamp down inflation. After six hikes, inflation is at a 30-year high. More rate rises are likely on the way.”

According to Finder, almost three-quarters of Australians (70 per cent) say they couldn’t afford their mortgage repayments if there was another rate hike before Christmas – the equivalent of 4.1 million households.

Worryingly, 9 per cent (roughly 500,000 people) say they’d have to sell their property if hit with another hike.

A further 3 per cent admit they would default on their mortgage if their interest rate went up any higher.

Mr Cooke said rapidly increasing interest rates will have dire consequences for Aussie households.

“The prospect of one more interest rate spike is just too much to manage for millions of households causing many to go to extreme lengths,” he said.

The record increase in the cash rate is already weighing on property prices with the majority of panellists predicting a price drop for houses across all capital cities.

Sydney is projected to suffer the biggest drop of 13.4 per cent from its peak, a loss of $174,200 off the median property.

Melbourne is not far behind, with experts predicting a 12.9 per cent drop for a loss of $116,100 in value.

Mr Cooke said he thinks the panel’s predictions for house price drops in Sydney are actually optimistic.

“We’ve already seen more than 10 per cent wiped from housing values in some areas since the peak, and the cash rate will just keep climbing,” he said.

“It’s a worst-case scenario, but price falls of up to 25 per cent would not be unrealistic.”

Houses in Hobart and Canberra are tipped to lose 9.8 per cent and 9.5 per cent, while the other capital cities are looking at drops between 9 per cent and 9.4 per cent.

“If lessons are to be learned from similar price falls in places like Ireland post-GFC, the outer suburbs and apartments will be the hardest hit, and the slowest to recover.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.