RBA has “little choice” but to hike rates in September

The Reserve Bank of Australia appears set to hike the official cash rate at the September meeting with consistently high inflation leaving them with “little choice”.

According to a new survey from Finder, 97 per cent of experts predict another cash rate rise this week, with 64 per cent expecting the RBA to hike rates by 50 basis points.

However, there could be some relief in sight for borrowers as the majority of experts (69 per cent) expect the RBA to then hold the cash rate steady in October.

Money expert at Finder, Richard Whitten, said a growing number of homeowners were already feeling the pinch of higher interest rates.

“A fifth consecutive cash rate rise will be a tough burden for many households who are already grappling with serious pressures on their budget,” Mr Whitten said.

“This could cost an average mortgage holder a staggering $9608 extra per year compared to what they were paying in April.”

Chief Economist at QIC, Matthew Peter said interest rates will continue to rise as central banks around the world continue with their battle against inflation.

“The RBA is now committed to lowering inflation, as are most other central banks,” Mr Peter said.

“The Jackson Hole pronouncements have given the RBA little choice other than to raise rates by another 50 basis points at their September meeting to be followed by another 50 basis point hike in October.”

Head of Economic and Market Research at Bendigo Bank, David Robertson, said another rate rise was imminent.

“Another 50 basis point RBA rate hike in September will take us closer to a neutral cash rate, before likely a quarter per cent increase in October and November,” Mr Robertson said.

“The RBA will remain on a tightening bias until core inflation is back near target, to try to minimise the risks of the global inflation shock.”

Mr Whitten said the predicted rate rise will be tough news for many homeowners.

“Mortgage repayments are already significantly higher than what they were earlier this year,” he said.

“A 50 basis point rate increase will see the average Aussie homeowner forking out an additional $801 per month compared to what they were paying just five months ago.

“Borrowers who took out fixed rate home loans before the rate rises started won’t notice a difference straight away, but they’ll get a real shock once that rate stops and they are looking at a fixed-rate cliff.”

Rising mortgage costs have already seen almost one in four (24 per cent) homeowners struggling to pay their mortgage costs in September according to Finder’s Consumer Sentiment Tracker.

At the same time, higher interest rates will also likely continue to negatively impact property prices.

The majority of experts believe that property prices will fall by 5-10 per cent by the end of 2023 in Sydney (81 per cent), Melbourne (85 per cent) and Brisbane (74 per cent.

However, most panellists forecast either no change or a drop of just 5 per cent, in Perth (72 per cent), Adelaide (67 per cent), Canberra (72 per cent), Hobart (56 per cent) and Darwin (78 per cent).

While the weakness in home prices is negative for homeowners, the research shows nearly a third of Australians (30 per cent) are hopeful that falling house prices might help them get their foot on the property ladder.

This figure climbs to 61 per cent among Gen Z Australians and 39 per cent among Millennials.

Mr Whitten said rising interest rates were making it more expensive for homeowners to service a mortgage, and more difficult for investors to turn a profit on rental properties.

“This has a natural dampening effect on the price people are willing to pay for a home,” he said.

“Unless you’re planning to sell your home, you don’t need to pay much attention to falling property prices.

“In the long run, property is still an excellent way to accumulate wealth.

“If you are in a position to buy, the next 6 to 12 months could be a good opportunity to score a better deal on your dream home – as long as you can afford your home loan repayments as rates rise.”

As inflation continues to bite the hip pockets of average Australians, there have been suggestions that price controls could be a way to limit rising costs.

According to the survey, the majority of experts (82 per cent) aren’t in favour of the government introducing price controls on energy or food.

Head of Investment Strategy and Economics and Chief Economist at AMP, Dr Shane Oliver, said price controls don’t work.

“They will just keep demand high relative to supply and lead to shortages,” Dr Oliver said.

“Windfall taxes on coal and gas producers and using that to support low income earners would be a better way to go but even that is fraught if it’s not handled properly.

Senior Lecturer in Macroeconomics at the University of Tasmania, Mala Raghavan said she was against the government introducing price controls on energy.

“However I would welcome price controls on essential food items to ease the cost of living pressures,” Ms Raghavan said.

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Rowan Crosby

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