An almost certain interest rate hike next month means respite for borrowers is likely to be further delayed into next year, economists say, with the Reserve Bank of Australia more likely to raise rates than cut them.
All four big banks expect a Melbourne Cup day rate hike to 4.35 per cent, which would be the highest since 2011. National Australia Bank chief executive Ross McEwan on Friday said he expected customers may find it difficult to adjust their budgets to another hike.
“We’ve had a lot of increases, we’ve had a period of stability, when increases haven’t been coming through — and we’re now starting to see people adjusting. And it’s the change that people don’t like,” he said in a radio interview.
“It’s the constant movement of interest rates – (they) can’t adjust the budget fast enough.”
Commonwealth Bank economists — in upping their cash rate expectations to 4.35 per cent — have pushed out their forecast for the first rate cuts to September next year.
Head of Australian economics Gareth Aird said though inflation would not have return to the RBA’s 2 to 3 per cent target by then — which it is aiming to secure by raising rates — he expects inflation, wages, unemployment data and the pace of the economy to show cuts can begin.
Mr Aird also noted the RBA’s previous assessment in February this year that interest rates at 3.35 per cent were considered restrictive — a level expected to continue until 2025.
Analysts have described the RBA as more “hawkish” — or favouring higher rates if needed — in its recent language around inflation. They have particularly held on to governor Michele Bullock repeatedly emphasising the RBA would not tolerate inflation taking too long to return to target — something the governor downplayed as something “we’ve always said”.
“The RBA is concerned that if inflation stays above its target band for longer than it’s already forecasting (that) will boost long term inflation expectations, making it even harder to get inflation back to target,” AMP chief economist Shane Oliver said.
Dr Oliver, who expects the RBA to hike but thinks it should wait for more signs of the impacts on households to wash through the economy, said the bank would likely increase rates to highlight its independence from Government.
Treasurer Jim Chalmers this week said the inflation figures — a 1.2 per cent quarterly increase over the September quarter — was not a “material change”, one of the RBA’s stated prerequisites for a rate hike.
Dr Oliver said: “Unfortunately, the Treasurer’s comment … ahead of the RBA formally reviewing whether it was or not adds to pressure on the RBA to hike again — or otherwise risk raising questions about its independence.”
ANZ head of Australian economics Adam Boyton said the RBA would retain a bias towards increasing rates.
“The risk of additional hikes is real,” he said.
The RBA board is still down one member because Dr Chalmers is yet to appoint Ms Bullock’s deputy. Analysts are anticipating if and how the RBA’s forecasts — due on November 10 — will change in light of the inflation data.