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RBA holds cash rate at 10 basis points for 11th consecutive month, discontinues yield control

Reserve Bank of Australia. Source: RBA

There will likely be another cash rate hike on Nov 1

Australians will likely experience a harsh awakening when they return from their long weekends in November.

For debtors, more suffering is probably in store since 97 per cent of experts predict that the Reserve Bank of Australia (RBA) will raise the cash rate at its November meeting. Since small business loans are based on external standards, any increase in the repo rate will immediately result in higher borrowing rates for them.

There will likely be another cash rate hike on Nov 1

In the Finder RBA Cash Rate Survey, 38 of the 39 experts were asked to predict that the cash rate will move on Tuesday, with 90percent predicting a hike of 25 basis points to 2.85 per cent.

Most panellists (35/39) predict a further increase of 25 basis points on Tuesday, bringing the cash rate to 2.85 per cent in November. Nearly all panellists (38/39) predict the cash rate to move on Tuesday. One in five experts (8/39) disagree with any rise and believe the RBA should retain the cash rate, while nearly half of experts (19/39) support the RBA’s anticipated increase of 25 basis points.

The Australian dollar experienced a loss in value on October 4 due to the central bank’s unexpected decision to hike interest rates by a smaller-than-expected quarter point. The Reserve Bank of Australia increased its cash rate objective by 25 basis points to 2.60 per cent. The interest rate on Exchange Settlement balances was also increased by 25 basis points to 2.50 per cent.

ALSO READ: Three out of every four SMEs in Australia expect a cash flow problem before 2024: report

 Cash rateAverage home loan rateAverage monthly repaymentAverage monthly increaseAverage annual repaymentAverage annual increase
April 20220.10%3.45%$2,231$26,772
October (current rate)2.60%5.95%**$2,966$735$35,592$8,820
November (25bp rate rise applied)2.85%6.15%**$3,046$815$36,552$9,780
Source: Finder, RBA.

According to Anneke Thompson, Chief Economist of CreditorWatch, data and estimates made public in the second half of October all indicate severe economic conditions in 2023. “The RBA board will likely have carefully considered labour force data, which showed that the unemployment rate has stagnated at 3.5 per cent, employment growth has slowed dramatically, and job vacancies have stopped rising.

“Data from employment marketplace SEEK also points to a slowdown in job growth, with job ads declining month on month for four months now and by 5.2% over September 2022, the largest decline all year. And in a sign that increasing migration is starting to help employers fill more roles, there was a 10.3% increase in applications for job ads month on month, the greatest rise since April 2020.

“The RBA has a dual role in maintaining inflation within the target band of two and three per cent and also maintaining full employment. Clearly, those two aims are incompatible in the current environment, as it will be almost impossible to bring inflation back to the target band if employment remains ‘full’. As a result, the RBA will be relieved to see the labour market slowing, which is essential to helping it get inflation back under control.

“It is likely, given that all signs are pointing to a weakening economy, that the RBA will take slower steps in tightening monetary policy as it tries to avoid sending Australia into recession. Despite continuing strong business sentiment, CreditorWatch data reveals businesses are starting to feel more financial pressure, with B2B trade defaults and court actions rising on a trend basis.”

What the experts are saying:

Anthony Waldron, Mortgage Choice (Increase): “I expect the Reserve Bank will raise the cash rate in November. Inflation remains high, and the latest Australian Bureau of Statistics data reveals a strong labour market.”

Tomasz Wozniak, University of Melbourne (Increase): “The forecasts from the bond-yield curve models I estimated consistently indicate an increase in the value of the cash rate until mid-2023, after which levelling off should follow. By that time, the cash rate will nearly surely be higher than 3.6%, will most likely reach 4%, and is unlikely to exceed 4.4%. This would mean that the interest rates might get to the levels from early 2012.”

Sveta Angelopoulos, RMIT University (Increase): “Although there is some indication of slowdown, it is still insufficient from a monetary policy perspective. A further increase in the cash rate is likely to be required to bring down inflationary pressure.”

Tim Reardon, Housing Industry Association (Increase): “This week’s CPI data will see the last increase before they pause to see the impact of this rapid increase in the cash rate.”

Garry Barrett, University of Sydney (Increase): “Inflation yet to be fully under control.”

Malcolm Wood, Ord Minnett (Increase):
 “Without a peak in inflation, rise in unemployment, data weakness or material fiscal tightening, the RBA is probably set to rise again.”

Craig Emerson, Emerson Economics (Increase): “The RBA has already said so.”

Peter Boehm, Pathfinder Consulting (Increase): “Inflation not yet under control, so rates will increase – but the increases will be less severe.”

Cameron Murray, University of Sydney (Increase): “Global momentum.”

Shane Oliver, AMP (Increase):“Inflation remains an ongoing problem, demand is still strong, and the RBA has signalled likely further rate hikes ahead.”

Alan Oster, Nab (Increase): “This is the tightening phase and needs to go above neutral.”

Mathew Tiller, LJ Hooker Group (Increase):“Inflation remains very high, and the RBA will continue to lift rates, despite a deterioration in the outlook for the global economy, to bring under control.”

Nicholas Gruen, Lateral Economics (Increase): “They’ve indicated a desire to.”

A/Prof Mark Melatos, School of Economics, University of Sydney (Increase):
“Inflation is significantly above the RBA’s target band and likely to increase further, notwithstanding declining oil prices and an increased risk of the global recession. Like most central banks, the RBA was slow to recognise the inflation threat and its policy settings needed to catch up to the inflation reality. Moreover, the RBA’s hand will likely be forced by increasingly aggressive tightening by other central banks. This means the cash rate will likely need to be raised steadily shortly with a likely pause from mid-2023 as the RBA assesses the impact of its tightening strategy.”

Matthew Greenwood-Nimmo, University of Melbourne (Increase):“Inflation is high and more rate rises are needed to bring it under control.”

Rich Harvey, Propertybuyer (Increase): “
There’s still further RBA rate rises to go before the inflation genie gets put back in the bottle. Likely that inflation will peak this quarter and then slow down next year. Australia is doing much better than other countries. There will likely be more 0.25% increases each month rather than larger moves as the RBA is watching the impact on other sectors very closely.”

Brodie Haupt, WLTH (Increase): “The Reserve Bank will continue to increase the cash rate until the inflation begins to abate.”

James Morley, The University of Sydney (Increase):“I think they’ve signalled one more hike and then wait to see effects of previous hikes and developments in the global economy.”

Azeem Sheriff, CMC Markets APAC (Increase): “We saw the RBA pivot to a 25pt vs 50pt [rise] as RBA hold monthly meetings and the pace of hiking is relatively similar to the pace of hiking by the Fed, and they have a much higher inflation rate. RBA could afford to turn it down a notch. With CPI numbers coming this month and expected to be around 7% headline, it will still take a few months to see a material change in the pace of inflation, better yet, a pivot/peak. RBA has forecasted a peak around 7.75% in 2023.”

Leanne Pilkington, Laing+Simmons (Increase):“While there’s a good chance the RBA will raise rates again on Cup Day, the case for month-on-month increases is weakening. At some stage, mortgage holders will soon need a reprieve, as larger repayments already have a significant impact on household budgets.”

Mark Crosby, Monash University (Increase):“Rates are still below neutral, though the key consideration in the next six months will be whether energy prices, in particular, stabilise or continue to rise.”

Nicholas Frappell, ABC Refinery (Increase): “The RBA is still in inflation-taming mode.”

Brian Parker, Australian Retirement Trust (Increase):“The RBA has more to do, but we’re close to the peak given that inflation is likely to fall over the coming year.”

Peter Munckton, Bank of Queensland (Increase): “The economy is in good shape, and inflation remains too high.”

Cameron Kusher, REA Group (Increase):“The RBA have reiterated that although the pace of rate hikes slowed in October, inflation remains too high, and interest rates will need to be increased.”

David Robertson, Bendigo Bank (Increase): “The RBA are still on their path to a ‘neutral’ cash rate of just above 3 % but now sensibly are progressing in 1/4 % increments. The next increase on Melbourne Cup day will take the cash rate up to 2.85 %, before a likely pause until February 2023 when the rate will reach 3.1%.”

Tim Nelson, Griffith University (Hold):“RBA still concerned about inflation.”

Noel Whittaker, QUT (Increase): “They have made no secret of the fact they will increase range till they reach with their regards normal – which I think will be around 4%.”

Stella Huangfu, University of Sydney (Increase): “CPI inflation has dropped from 7% (in the year to July) to 6.8% (in the year to August). Although it is still way above the reserve bank’s 2-3 inflation target, apparently inflation has started easing.”

Nalini Prasad, UNSW Sydney (Increase):“Inflation remains well above the RBA’s target range. Inflationary pressures remain a concern across a number of countries globally. In addition, the labour market in Australia is also tight. In real terms, interest rates in Australia are still negative. The RBA will need to raise interest rates into the future to reduce inflationary pressures and move the real interest rates into positive territory.”

Jeffrey Sheen, Macquarie University (Increase): “To ensure the re-anchoring of inflation expectations.”

Dale Gillham, Wealth Within (Increase):“The RBA is still predicting inflation to rise slightly into the end of the year. So far, it has not reached its target figure for interest rates to curb this highly inflationary environment. I would expect more rate rises over the coming months.”

Stephen Halmarick, Commonwealth Bank (Increase): “To combat high inflation.”

Geoffrey Harold Kingston, Macquarie Business School (Increase):“Economy is still running too hot.”

Jakob B Madsen, University of Western Australia (Increase):“Inflation concerns.”

Jason Azzopardi, Resimac (Increase): “Inflation reduction requires significantly more monetary policy tightening.”

Stephen Miller, GSFM (Increase):“Inflation will be more intractable than the RBA and markets are currently contemplating.”

Mark Brimble, Griffith Uni (Increase):“With inflation stubborn, the RBA is likely to want to contract monetary policy further, moving in smaller increments given rising energy prices and slow fiscal stimulus from Government.”

Michael Yardney, Metropole Property Strategists (Increase): “The current cash rate is close to neutral, not that the RBA really knows what the neutral level is (yet), and the Bank still needs to slow inflation by racing rates and dampening demand.”

 For further information, visit www.finder.com.au.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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