RBA survey: 72% forecast a rate hold, say mortgage stress is yet to peak

Finder's monthly survey of the nation’s experts found they are predicting another cash rate hold in August following lower-than-expected inflation figures.

In this month’s Finder RBA Cash Rate Survey™, 43 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

The majority of panellists (29/43, 67%) believe the RBA will hold the cash rate at 4.10% in August, leaving less than 1 in 3 (28%, 12/43) predicting an increase.

Of those forecasting a hike, the majority (10/12, 83%) are anticipating a rate rise of 25 basis points – bringing it to 4.35%.

Richard Whitten, money expert at Finder, said homeowners could likely breathe a sigh of relief this month.

“Following lower than expected CPI inflation figures for the June quarter, many economists are tipping another rate pause from the RBA.

“This will be welcome news to the rising number of homeowners who are already struggling to pay their mortgages.

“If the RBA does hike the cash rate in August, it will be death by a thousand cuts for many,” Whitten said.

Cameron Murray from the University of Sydney pointed to inflation figures as the reason for a hold.

"Inflation has peaked, and globally, inflation is rapidly falling," Murray said.

Noel Whittaker from QUT Business School is expecting a hold but said we aren’t out of the woods yet.

"I think the Reserve Bank would be looking for an excuse to put rates on hold given the amount of anecdotal evidence that the interest-rate rises are having some effect on consumer spending.

“However, July has been a big month for price increases, but they are not reflected in last week's CPI figures. But they will be in play at next month's board meeting.

“So my view is hold this month, but increase next month,” Whittaker said.

Shane Oliver from AMP is predicting a rate hike but says it could easily go either way.

"Our base case is now for just one more rate hike as the RBA likely remains concerned about high and still rising services inflation and upside risks to wages growth.

"However, the RBA has likely already done enough and inflation is now falling rapidly so it's a very close call," Oliver said.

The panel's forecast for the cash rate peak has now decreased slightly from an average of 4.54% to 4.4%. This likely means at least one more cash rate increase.

Peak levels of mortgage stress are just around the corner

A staggering 40% of Aussie homeowners say they struggled to pay their mortgage in July, according to Finder’s Consumer Sentiment Tracker.

That’s up from 26% this time last year, and 21% in July 2021.

Almost 2 in 3 experts who weighed in* (64%, 16/25) expect the proportion of households in mortgage stress to peak between August and December this year.

Whitten said many were already on the brink.

“A dozen cash rate rises in close succession has hit many household budgets hard, but the worst is likely yet to come.

“Our panel is largely in agreement that the combination of cash rate hikes and the expiry of more fixed rate loans will see mortgage distress reach a peak over the coming months,” Whitten said.

Mark Crosby from Monash University noted, "As more fixed rate loans expire more homeowners will struggle – this is likely to peak in the second half of 2023."

Evgenia Dechter from UNSW Sydney said households are depleting their savings to repay loans.

“More households are transitioning from fixed to variable rates," Dechter said.

Spending on Taylor Swift is not a cause for inflation

All experts who weighed in (24/24) were in agreement that spending on Taylor Swift concerts in Australia will have no effect on inflation.

The panel cited that the concerts were one-off events and that people would largely cut back on other areas of their spending, as reasons why there would be no real impact.

Stella Huangfu from the University of Sydney said it is just an event of 3-4 days, and it will only take place in Sydney and Melbourne.

“The concerts won't generate any significant impact.

Also, by February next year, the demand in the economy could be even lower than now given that the RBA could increase interest rates 1-2 more times. The concerts could boost demand but it won't be inflationary."

- Huangfu said.

Nicholas Frappell from ABC Refinery said that spending on Taylor Swift concert tickets and hotels will likely come at the expense of discretionary spending elsewhere.

Finder’s research shows three-quarters of Australians (74%) – equivalent to 15 million people – have held onto spending on certain luxuries despite the cost of living crisis.

*Experts are not required to answer every question in the survey

Here’s what Finder's experts had to say

Michael Yardney, Metropole (Hold):

"The latest quarterly CPI stats show that the growth in inflation has eased and come in under the RBA's forecast. Even though job numbers in June came in surprisingly strong, the RBA now has less pressure to raise rates again."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Hold):

"The latest quarterly and monthly CPI data provide further evidence that inflation, though still "too high", is on its way down towards the RBA's target. However, with the labour market still very tight, the RBA will be paying attention to any indication of an acceleration in labour costs, and will need to see some easing in labour market conditions before it can contemplate any reductions in interest rates."

Andrew Wilson, My Housing Market (Increase):

"Booming economy shows no sign of slowing down with another month of remarkable record results for the labour market. Although inflation has eased it remains well above the target range with recent falls due to lower fuel costs and house building costs which would have occurred regardless of interest rate rises. July's extraordinary decision to hold rates in the face of clearly strong data is another lost opportunity to maintain higher rate momentum to reduce demand."

Cameron Kusher, REA Group (Hold):

"Both headline and underlying inflation for June 23 has come in lower than the RBA's current forecasts. Even though services inflation is strong year-on-year it has slowed over each of the past two quarters which should, in my mind, be enough evidence for now that rate hikes are working and inflation is slowing, resulting in a pause."

Stephen Miller, GSFM (Hold):

"Inflation will prove "sticky" as the Fair Work Commission wage decision impacts in H2 2023."

A/Prof Mark Melatos, School of Economics, University of Sydney (Hold):

"Inflation appears to be moderating more quickly than expected. However, it still remains significantly above the Bank's target range. There is still upside risk to rates especially if inflation stagnates above the 2-3% target."

Nalini Prasad, UNSW Sydney (Hold):

"Inflation has slowed down in the past six months, suggesting that previous interest rate rises are having an effect. The RBA has indicated that they are likely to pause increases in interest rates to see the effect on inflation. So far it looks like previous rate hikes are working."

Stella Huangfu, University of Sydney (Hold):

"Quarterly CPI inflation is 0.8% for the April - June quarter. Annual inflation is 6% over the year to June. We have seen the peak of inflation (which is 7.8% in December). Inflation is coming down much more quickly than expected. The chance of the RBA increasing the interest rate in August is low."

Harry Murphy Cruise, Moody's Analytics (Hold): "

What goes up must come down and Aussie inflation is coming down fast. Last month, we put the chances of a further interest rate hike at slightly greater than even odds. The June inflation data has tipped those odds the other way. The narrow path to a soft landing remains precarious, but it is less perilous than it was just a handful of months ago. Inflation will track lower from here. By the end of the year, we see inflation sitting at 3.9% y/y. It should return to the RBA’s 2% to 3% target band by the September quarter of 2024 almost a year ahead of the RBA’s projections."

Evgenia Dechter, UNSW Sydney (Hold):

"Recent data shows a slowdown in inflation. The unemployment rate is still low but we do not observe substantial increases in wages. Other macroeconomic indicators suggest a slowdown in the economy. As the full effect of the recent monetary policy measures is still passing through, the RBA may consider holding the cash rate."

Matthew Greenwood-Nimmo, University of Melbourne (Hold):

"Inflation seems to be falling faster than many expected, giving the RBA room to pause and assess the impact of their previous rate hikes, which take time to feed through to the economy. However, wage growth relative to productivity is still a cause for concern."

Rich Harvey, PROPERTY BUYER (Hold):

"There’s likely to be one more interest rate increase given that inflation has printed at 6% in the last month. The RBA has repeatedly pointed out that it will do whatever it takes to get the inherent inflation rate back down into its target range so that it does no further long-term economic damage to the economy."

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Mala Raghavan, University of Tasmania (Hold):

"The RBA is expected to put a pause on its cash rate hike in August, not primarily because of falling inflation but rather due to the upcoming appointment of a new Governor Bullock, who will take office in September. As the outgoing Governor's tenure comes to an end, there might be less pressure on Governor Lowe to raise the cash rate. However, it's worth noting that despite the inflation rate of 6% in the June quarter being lower than the previous recording of 7% in the March quarter, it still remains significantly higher than the desired target range of 2 to 3 percent. The gradual decline in the overall inflation figure indicates that the previous cash rate hikes have been effective in curbing the overall price level. Upon closer examination of the CPI figures provided by the ABS, it becomes evident that two essential household categories continue to experience high prices. Housing costs have remained at a significant level of approximately 8.1%, while food and non-alcoholic beverages have increased by 7.5%, thus impacting the overall cost of living index for vulnerable households in Australia. Considering this situation, the RBA may consider implementing one or two additional rate hikes in the future if inflationary pressures on these essential items persist. However, any decisions on rate adjustments would likely depend on the economic developments and the effectiveness of previous measures."

Anthony Waldron, Mortgage Choice (Hold):

"The latest data from the Australian Bureau of Statistics showed that inflation slowed in the June quarter, with the lowest quarterly rise since September 2021. This information should give the Reserve Bank space to keep the cash rate on hold in August."

Craig Emerson, Emerson Economics (Hold):

"Inflation is falling and there is a contractive force in the economy from previous cash rate increases that haven’t been fully felt yet."

David Robertson, Bendigo Bank (Hold):

"The RBA board are still likely to tighten policy further but the Q2 inflation data offers the opportunity to extend last month's pause and gather further data. Tight labour markets and stubborn services inflation adds to upside risks, but another pause would be welcome."

Tim Nelson, Griffith University (Hold):

"The rate of change for inflation is now negative indicating that inflation is slowing. Prior rate increases are now biting and the RBA may wish to wait to see the impacts of these play out given monetary policy lags."

Jonathan Chancellor, The Daily Telegraph (Hold):

"Inflation is heading in the right direction, with the higher interest rates taking effect too."

James Morley, The University of Sydney (Hold):

"Headline and underlying measures of inflation have peaked in Q1 and are all tracking lower in Q2. Also, the monthly measure of CPI continues to show substantially lower inflation at 5.4% year-ended for June. Given this, I think the RBA will hold rates. There are likely some concerns on the Board that services inflation is higher at 6.3% year-ended for Q2. But I also think that the Board will likely wait until the new Governor commences in that role before the October meeting to make any surprise moves of tightening and only if there are other indicators such as a substantial rebound in monthly inflation, which I don't expect to happen. The RBA will likely cite continued impacts of past hikes and increasing real interest rates as inflation falls as reasons to hold at this meeting."

Jason Azzopardi, Resimac (Hold):

"The June quarter CPI will allow the RBA to delay further increases for a short period of time. I do however believe lowering inflation to the target band will require further increases."

Leanne Pilkington, Laing+Simmons (Hold):

"Inflation remains high but is slowing and with the recent changes to the Reserve Bank, not to mention the increased scrutiny it faces, we believe 'hold' is the most likely outcome."

Noel Whittaker, QUT Business School (Hold):

"I think the Reserve Bank would be looking for an excuse to put rates on hold given the amount of anecdotal evidence that the interest-rate rises are having some effect on consumer spending. However, July has been a big month for price increases, but they are not reflected in last week's CPI figures. But they will be in play at next month's board meeting. So my view is hold this month but increase next month. We are not out of the woods yet."

Geoffrey Harold Kingston, Macquarie Business School (Hold):

"The August decision will be line ball. However, two things may incline the RBA to hold. First, this month's below-expectations read of the CPI. Second, this month's data showing a fall in job ads."

Sean Langcake, Oxford Economics Australia (Hold):

"The Q2 CPI print surprised to the downside, showing a welcome moderation in services inflation. While the outlook for unit labour costs is still concerning over H2 2023, we think the disinflation in the headline measure likely buys the RBA some time to continue to 'wait-and-see'."

Tony Sycamore, IG Markets (Hold):

"The softer than expected Q2 2023 inflation numbers released today means the RBA can stay on hold for August and likely September, before one more rate hike before year-end."

Jakob Madsen, University of Western Australia (Hold):

"The inflation is still well above the RBA target."

Jeffrey Sheen, Macquarie University (Hold):

"Inflation has continued to fall, and should eventually converge to the RBA’s target range. There is no sign of a wage breakout, which would otherwise recommend an interest rate increase."

Garry Barrett, University of Sydney (Hold):

"Signs of a slowdown in economic activity, particularly consumption, with evidence of easing in inflation"

Nicholas Gruen, Lateral Economics (Hold):

"I'm guessing they may hold off till they see more, and that the economy slows. But who knows?"

Cameron Murray, University of Sydney (Hold):

"Inflation has peaked, and globally, inflation is rapidly falling."

Matthew Peter, QIC (Hold):

"The RBA is close to finishing its tightening cycle, as is the Fed. The next few RBA meetings will continue to be data-driven. We expect to see the June quarter CPI continue to trend down, which will enable the RBA to stay on hold in August."

Mark Brimble, Griffith Uni (Hold):

"The economy, wages and employment not slowing quickly enough to create a sustained downward pressure on inflation."

Nicholas Frappell, ABC Refinery (Increase):

"The latest CPI data may give the RBA scope to pause again although inflation and labour market data are actually strong enough to justify further hikes."

Stephen Halmarick, Commonwealth Bank (Increase):

"One further rate hike in August to complete the process."

Tomasz Wozniak, University of Melbourne (Increase):

"My forecasts indicate a 15 basis point rise in the cash rate, with further increases up to 4.5% in October. The narrow forecast interval, spanning the values from 4.16 to 4.33% for August, leaves little doubt about the projected raises. However, the quarterly reading of year-to-year inflation at 6%, putting it on a speedy path towards the RBA's target, makes this raise somehow less likely this month. My forecasts are available at: https://donotdespair.github.io/cash-rate-survey-forecasts/.”

Shane Oliver, AMP (Increase):

"Our base case is now for just one more rate hike as the RBA likely remains concerned about high and still rising services inflation and upside risks to wages growth. However, the RBA has likely already done enough and inflation is now falling rapidly so it's a very close call."

Malcolm Wood, Ord Minnett (Increase):

"On-going labour cost pressures that are not compatible with the inflation target."

Mark Crosby, Monash University (Increase):

"While the latest inflation read is lower, it is still high, and the real interest rate is still negative. I now see one more rate rise before year-end before a pause to wait on the next inflation read/s."

Dale Gillham, Wealth Within (Increase):

"According to the ABS CPI rose 0.8% in the last quarter, so whilst CPI is down on a yearly basis, I suspect it is not coming down as fast as the RBA might like. Given this and looking at what other countries are doing, they may start to take a more aggressive approach."

Peter Boehm, Pathfinder Consulting (Increase):

"Despite a reprieve last month, rates will need to increase again to counter high inflation, high house prices and a strong labour market."

Tim Reardon, HIA (Increase):

"The CPI will remain elevated. Unemployment remains very low."

Alan Oster, NAB (Increase):

"Inflation is still too high. But the economy is weakening. Need to get back to around 3% from mid-2024."

Brodie Haupt, WLTH (Increase):

"The strength of the labour market will continue to keep upward pressure on wages and inflation. Another rate rise is most likely on the cards."