What’s ahead for interest rates | 38 Australian experts give their thoughts

66% of experts in this month’s Finder RBA Cash Rate Survey™, believe interest rates have peaked with almost all experts confident the RBA will hold the cash rate in September.

An overwhelming majority of panellists (97%, 37/38) believe the RBA will hold the cash rate at 4.10% in September.

The panel's forecast for the cash rate peak has now decreased slightly from an average of 4.4% to 4.2%.

Graham Cooke, head of consumer research at Finder, said homeowners will 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.

“This will be music to the ears of mortgage holders still reeling from the last 11 rises,” Cooke said.

Cooke said homeowners aren’t out of the woods yet.

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

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

Mark Melatos, Associate Professor of Economics at the University of Sydney predicted a hold but thinks we are likely to see a peak rate of 5.1%.

“Inflation remains significantly above the RBA's target band. 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,” Melatos said.

27% of Australians do not believe they will ever be able to afford a home

The government has proposed spending more than $3 billion in incentives to state governments to build 1.2 million new homes over the next 5 years.

Three quarters of the panel (77%, 24/31) believe that this policy will actually boost housing supply.

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

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

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.

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

Dale Gillham from Wealth Within said whilst supply will increase, it will not solve the big issue of housing shortages across Australia.

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,” Teng said.

Economists say the government is not responsible for helping mortgage prisoners

Homeowners who are unable to refinance their mortgages because they don’t meet other lending requirements or their balance is too small have been dubbed “mortgage prisoners”.

More than 4 in 5 of experts who weighed in (82%, 23/28) do not believe the government should assist these people in refinancing to a lower rate.

Panellists largely cited that this would give the wrong incentives to both lenders and borrowers.

Jakob Madsen from University of Western Australia said,

“The real interest rate is still negative, so borrowers are paid to borrow.

Why should the tax-payer pay for imprudent decisions by house owners and lenders?”

Experts say supply chain paramount to tackling inflation

Annual inflation fell to 4.9% in July, down from 5.4% in June – exceeding forecasts it would slow to 5.2%.

Almost 2 in 5 of the panel (37%, 10/27) believe supply chain problems are the most important issue to tackle to bring inflation down.

A third (33%, 9/27) noted consumer demand as a priority, while a small minority (22%, 6/27) think wage growth is paramount to falling inflation.

Stella Huangfu from The University of Sydney said the RBA has a long fight ahead of them.

“The pressure coming from the supply side has eased quite a lot. Now, the wage-price spiral seems to be the main driving force of inflation.

“How to avoid this spiral is now the crucial part in RBA's battle against inflation,” Huangfu said.

Shane Oliver from AMP said wages and profit margins can be just symptoms of inflation, not its causes.

“The key is to rebalance demand relative to supply which means cooling demand and boosting supply,” Oliver said.

• Also read:The Boom and Bust of our Property Cycles: A Journey Through the Investor’s Mind
• Also read:Latest property price forecasts for 2024 revealed. What’s ahead in our housing markets in the next year or two?
• Also read:This week’s Australian Property Market Update – Latest Data, State by State April 16th 2024
• Also read:Melbourne property market forecast for 2024
• Also read:Brisbane’s property market forecast for 2024

Here’s what our experts had to say:

Michael Yardney, Metropole (Hold): "There is enough evidence that inflation is under control and slowly falling for the RBA to keep interest rates on hold."

Jakob Madsen, University of Western Australia (Increase): "Inflation is still a concern."

Tim Nelson, Griffith University (Hold): "Awaiting further information about rate of change of inflation."

Stella Huangfu, The University of Sydney (Hold): "Apparently, inflation is on the right track. The 4-percentage point increase since May last year is finally showing its full effect! However, 4.9% annual inflation is still high. RBA should wait and see."

Tomasz Wozniak, University of Melbourne (Hold): "Even though the 68% interval of my pooled forecast coming from a system of a hundred various predictive models does not include zero change, this is the case for over half of the models. Additionally, the 90% forecast interval includes the HOLD decision. This fact, combined with the decreasing monthly inflation at 4.9% in August, makes me interpret the forecasts indicating no change in the cash rate for at least another three months."

Garry Barrett, University of Sydney (Hold): "Latest CPI indicates economy is cooling"
Jason Azzopardi, Resimac (Hold): "Inflation print is gradually decreasing in line with the RBA strategy to manage a soft landing and not give away employment market gains."

Shane Oliver, AMP (Hold): "The RBA has already tightened significantly and the recent run of data for wages growth and jobs were weaker than expected, retail sales are trending sideways (or down in real terms) and inflation is continuing to fall."

Evgenia Dechter, UNSW (Hold): "A range of indicators suggest a slowdown in both economic growth and inflation."

Cameron Kusher, REA Group (Hold): "Inflation is falling in line with RBA forecasts and most economic indicators point to a slowing economy, exactly what the goal has been of the recent rate-hiking cycle."

Matthew Greenwood-Nimmo, University of Melbourne (Hold): "The latest data shows that inflation is easing. Given that the full effects of the RBA's previous rate hikes are yet to work their way through the economy, there is a strong case for the RBA to hold."

Jeffrey Sheen, Macquarie University (Hold): "With inflation slowly trending downwards, and provided there are no major unexpected shocks, the RBA has now done enough tightening to achieve its inflation target in a reasonable time. There is a significant risk of exported deflation and stagnation from China in the next 6 months, which may require the RBA to ease monetary policy."

Nicholas Frappell, ABC Refinery (Hold): "Slightly weaker headline inflation domestically and deflationary pressures from our biggest trading partner imply the RBA can pause."

Tina Teng, CMC Markets (Hold): "Australian inflation declined but is still above the targeted level of 2%. The economic growth slowed and the unemployment rate climbed."

Dale Gillham, Wealth Within (Hold): "The data is suggesting that the economy is slowing and pushing rates higher now may force us into a recession, which I am sure the RBA wants to avoid."

Harry Murphy Cruise, Moody's Analytics (Hold): "Inflation is coming down quickly – more so than the Reserve Bank of Australia expected. As such, interest rates won’t need to rise any further. Instead, rates will stay on hold until the middle of next year. At that point, with inflation firmly retreating to the RBA’s 2% to 3% target band, a series of cuts will see that cash rate finish 2024 at 3.35% and drop to 2.85% in the second half of 2025."

Nalini Prasad, UNSW Sydney (Hold): "The monthly CPI indicator pointed to a continued, albeit small, easing in inflationary pressures. I think that this will give the RBA time to wait and see what happens in the future."

Stephen Miller, GSFM (Hold): "No smoking gun yet but I expect some meaningful wage and price inflation in H2 23."

Brodie Haupt, WLTH (Hold): "With the latest inflation numbers easing to 4.9% in July, down from 5.4% in June, it reduces the likelihood of the RBA pushing rates higher this month."

Mark Crosby, Monash University (Hold): "Inflation is falling at about the expected rate, and while it remains elevated, we can hope that it is close to the RBAs target range by early 2024."

Noel Whittaker, Adj Professor QUT Business School (Hold): "Inflation is down a little, in there much anecdotal evidence of reduced consumer spending. Also, the interest-rates to date are really starting to bite."

Sveta Angelopoulos, RMIT University (Hold): "Softening of inflation suggests that the RBA will continue to hold the cash rate."

Mathew Tiller, LJ Hooker Group (Hold): "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."

James Morley, The University of Sydney (Hold): "I think the RBA will hold given the decline in inflation and weakening of domestic demand. There is a good chance Australia will avoid recession, with a low dollar helping exports. But weakness in China's economy is a worry. If there is an outright decline in real GDP in Q4, then I would expect the RBA to start cutting rates in February."

Tony Sycamore, IG Markets (Hold): "I am looking for the RBA to hike rates one more time before the year as it fine-tunes its monetary policy settings to ensure inflation returns to target within a reasonable time frame."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Hold): "The latest monthly CPI data for July show a further and welcome decline in 'headline' inflation to 4.9%, the lowest since February 2022, but of course still well above the RBA's target range. 'Underlying' inflation also fell, but only to 5.6%, even further above the target range. So, no need to tighten policy further, but nor any reason to anticipate any reductions in interest rates any time soon,"

Sean Langcake, Oxford Economics Australia (Hold): "Having held rates in August, the RBA appear to be comfortable with the path the economy is following. Upside risks to inflation remain as wage growth has yet to peak. But the RBA's forecasts and communications show they are willing to weather an extended period of above-target inflation."

Geoffrey Kingston, Macquarie University (Hold): "The Bank will probably hold in September because year on year employment growth was slightly negative in June, and annualised monthly CPI inflation was only 3% in that month."

Nicholas Gruen, Lateral Economics (Hold): "Because there are fewer reasons to raise rates than last time when they left them alone."

Craig Emerson, Emerson Economics (Hold): "the RBA will consider it too early to ease and will maintain its pause position."

Peter Boehm, Pathfinder Consulting (Hold): "The combined impact of a slowing Australian economy and a slowing Chinese economy means the need to raise rates is not needed right now. The RBA needs to allow the recent rate increases to flow through the economy, and to provide some respite for the average Australian family who has been doing it tough over the past 12 to 18 months. There is no benefit in plunging the Australian economy into recession through further rate increases."

Geordan Murray, Housing Industry Association (Hold): "RBA wants to be very sure that inflation is returning to target. We see risks of softening household demand being a greater consideration in monetary policy settings in the first half of 2024."

Cameron Murray, Fresh Economic Thinking (Hold): "Inflation falling. Tightening cycle needs time to wash through the economy."

Mark Melatos, School of Economics, University of Sydney (Hold): "Inflation remains significantly above the RBA's target band. 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. The RBA currently seems particularly concerned about services inflation and potential wage increases unaccompanied by productivity gains. The recent slide in the value of the $A is likely to add to imported inflation in the near term. There is inconclusive evidence as to the impact of monetary tightening on consumption."

Stephen Halmarick, CBA (Hold): "On hold and lagged effect of rate hikes impact the consumer, labour market and inflation."

Rich Harvey, Propertybuyer (Hold): "To date, the data is showing that inflation is decreasing slowly as households are finally feeling the real pinch of significantly higher mortgage repayments. There's likely to be many discussions around the dinner table as to how households will adjust spending patterns to cope with higher rates. Discretionary spending is down and likely to stay low for next 6 months, and likely to see some investors offload investment properties if the drag on their budget is too strong. All this provides good buying opportunities for savvy buyers with financial means to secure more property."

David Robertson, Bendigo Bank (Hold): "The RBA appears comfortable holding the cash rate at 4.1% ahead of the next quarterly CPI report out on October 25. Another hike to 4.35% remains the risk as core services inflation remains stubbornly high, but not until November at the earliest."

Matthew Peter, QIC (Hold): "The RBA has clearly signalled that it is on hold unless data reveals a risk to the steady decline in inflation. To date, we have wage and employment data that have surprised to the downside, so there is virtually no risk of any other result than on-hold at the RBA's September meeting."