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Has the interest rate rising cycle run its course?

Two-thirds of experts believe interest rates have peaked, while 97 per cent say the Reserve Bank of Australia will keep the cash rate steady at the next meeting.

The September 5 RBA Board meeting will be the last for controversial, outgoing Governor Dr Philip Lowe, who has drawn heavy criticism for stating interest rates would not rise until 2024, and then imposing 12 rate hikes.

Since May 2022, the cash rate has climbed four per cent to 4.1 per cent.

But according to Finder’s latest RBA survey, interest rates could have reached their terminal rate.

Of the experts surveyed, 66 per cent say the cash rate has hit its apex in the current rate rise cycle, while 97 per cent say the RBA will keep rates on hold at the September meeting.

The panel’s forecast for the cash rate peak has dropped slightly, from an average of 4.4 per cent, to 4.2 per cent.

Finder Head of Consumer Research Graham Cooke said homeowners would likely be let off the hook for the third consecutive month.

“The cost of living crisis has put an end to the post Covid spending splurge, giving the experts reason to believe that the RBA will hold off on increasing the cash rate,” he said.

“This will be music to the ears of mortgage holders still reeling from the last 12 rises.”

Mr Cooke said homeowners weren’t out of the woods yet.

“Despite a growing sentiment that the cash rate has peaked, mortgage holders need to remain on guard,” he said.

“Escalation in Ukraine, continued slowdown in China or a change in inflation could see the RBA lifting in the coming months.”

Mark Melatos, Associate Professor of Economics at the University of Sydney, predicted a hold in September but thinks the terminal rate will be 5.1 per cent, which is a full one per cent higher than the current cash rate.

“Inflation remains significantly above the RBA’s target band,” he said.

“While it appears that the labour market might be starting to slacken, the RBA is still in catch-up mode with respect to matching their cash rate settings to the inflation reality.”

LJ Hooker Group Head of Research Mathew Tiller said rates would pause in September.

“Recent data reveals that inflation continues to decrease, and the employment market has slightly softened, indicating that the earlier rate rises are starting to impact households and businesses,” he said.

Doubts about home ownership

The panel also weighed in on the Federal Government’s proposal to spend more than $3 billion to incentivise state governments to build 1.2 million homes over the next five years. 

Three quarters of the panel (77 per cent) believe this policy will actually boost housing supply.

This comes as Finder’s Consumer Sentiment Tracker data from August revealed 27 per cent don’t believe they will ever be able to afford a home.

Just 28 per cent believe now is a good time to buy property – this has been trending downwards since January (38 per cent).

Mr Cooke said the housing market has so far remained robust but the full impact of the rate rises have yet to be felt. 

“Property prices have peaked with retailers reporting falling profits,” he said.

“It’s a complex picture with many moving parts, which makes it tricky to navigate.”

Wealth Within’s Dale Gillham said supply would increase but it would not solve the housing shortage.

Tina Teng, from CMC Markets, said the incentives may only solve the problems to a certain degree.

“Jumping rents are related to high-interest rates that lead to a decrease in housing supply,” she said.

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.