RBA Interest Rate Cut Predicted, but Hikes May Loom
Economist Warren Hogan has alerted Australian mortgage holders to brace for potential interest rate increases in the near future, even as the Reserve Bank of Australia (RBA) is anticipated to announce a cut in the cash rate following its upcoming meeting. While a 25 basis point reduction to 3.85 per cent is on the horizon, Hogan believes that this may be the final cut for an extended period.
In February, the RBA reduced the cash rate for the first time in more than four years from 4.35 to 4.10 per cent. Despite this, Hogan highlighted concerns over inflation, warning that further cuts might be premature.
According to Hogan, the environment for additional cuts is changing; however, he predicts a 25 basis point reduction this week, and the possibility of a more substantial cut appears to be fading. He expressed in an opinion piece for The Australian Financial Review that unless unexpected global economic shocks occur, rate cuts may be limited moving forward. Hogan underlined the cyclical nature of economic conditions, suggesting that interest rate increases could return sooner than many anticipate.
All four major Australian banks share the expectation of a rate cut, with NAB suggesting a significant 50 basis point reduction could be forthcoming. The market largely views the predicted 25 basis point cut as a certainty, potentially paving the way for a reduction of the cash rate below the 4 per cent threshold.
Many analysts anticipate that further cuts may occur this year, possibly dropping the cash rate to around 3.5 per cent, which Hogan feels is a "reasonable expectation." The RBA’s commentary after the February meeting hinted at the determination to lower rates to a neutral level, assuming economic conditions allow for it.
However, persistently high underlying inflation—at 2.9 per cent and hovering near the upper limit of the RBA’s target band—presents challenges to sustaining accommodative monetary policy. Hogan elaborated that the current economic indicators do not strongly support a shift towards a more aggressive easing stance.
Recent unemployment figures also complicate the outlook. Australia’s unemployment rate held steady at 4.1 per cent, with 89,000 more jobs created than the previous month—exceeding economists’ forecasts. Russel Chesler, head of investments at VanEck, described the stagnant unemployment rate as a "boulder" that restricts further rate cuts, contributing to persistent service-related inflation.
Chesler noted that while inflation is presently within the target range, any upward pressure from a tight labour market and accelerating wage growth—now at 3.4 per cent—could risk additional inflation.
Experts anticipate that if the economic landscape shifts, particularly regarding employment metrics, further rate cuts may be warranted. A recent survey by Finder indicated that the majority of economists expect a cut on Tuesday, with more than half projecting two or more reductions within the next year, particularly in July and August.
As the RBA approaches its rate-setting meeting, market analysts will be closely monitoring for any indicators that might prompt a change in monetary policy direction.
For homeowners and mortgage holders, this evolving landscape means staying informed about potential rate adjustments that could impact their financial commitments.
