Economists expect Reserve Bank to keep interest rates on hold

ABC NEWS (Australia)

The Reserve Bank of Australia is due to make its next interest rate decision soon. As inflation slows faster than expected, economist Gemma Dale says so will rate rises.

Transcript

00:00 We are forecasting no increase for this meeting and we are not alone in that. That seems to

00:07 be the general consensus that we can sit tight at this point in time. We have one more increase

00:12 pencilled in for November, but it feels like the risks to that forecast are to the downside

00:18 that if anything happens it will be that we don't increase further and that it is highly

00:23 unlikely we will see several increases from here that are going to be flat. And then really

00:28 the question becomes when do we start to cut? When do we start seeing interest rates start

00:33 to come down? At this point we are anticipating that in the second half of next year and down

00:37 to around 3% 2025. So not a lot of upside risk to rates at the moment in our view. I

00:43 think really the data is starting to soften. That has become increasingly clear and the

00:48 RBA can be relatively comfortable that the job is okay for now.

00:53 So we have had obviously inflation come down a little bit more than we were anticipating.

00:58 Is that a trend we are likely to see continuing? What else is in play here with that?

01:02 That one is a bit of a tricky question. It is the monthly data we have just seen and

01:05 the monthly is very different to the quarterly. It only captures about two thirds of the total

01:09 basket. It is really heavily weighted towards goods. So it doesn't capture services inflation

01:15 and services where you see the wage pressure coming through. So that is what we are most

01:19 interested in seeing that quarterly figure. Is there really upward pressure from wages

01:25 that is going to start feeding back in? You see that sort of not an upward cycle like

01:29 the 70s, not that kind of thing, but some concern that there is a bit of upward pressure.

01:33 Then we also have the issue that oil prices are starting to rise again. $85 a barrel at

01:37 the moment, that is the highest since November. We did see a bit of a down tick in fuel costs.

01:42 They are quite meaningful. So is that going to be a bit of an issue?

01:45 We also had housing affordability on the news as a big story for us yesterday because it

01:52 is looking like housing affordability is still a real big issue for people. It is worse than

01:58 it has been in 30 years. Prices are still going up though. So how is that going to play

02:02 into things? It is such a tricky one. Housing affordability

02:06 just doesn't seem to ease as an issue in Australia. We saw prices come off a little last year

02:12 as rates started to increase and increase so dramatically. It was such an enormous shock

02:15 to go from 0.1% to 4.1% in 18 months. That was quite extraordinary. Yet that has an enormous

02:22 impact on affordability because then your mortgage rates go up. The fact that prices

02:26 came down briefly didn't help anyone very much. The issue is we have record immigration

02:30 at the moment. Demand is very high for housing. Because a meaningful proportion of the population

02:36 can afford housing. The activity is in that sector but it doesn't dramatically feed into

02:43 economic growth for example. This is transactional data that is not necessarily growth.

02:47 [BLANK_AUDIO]

Category

Transcript

Recommended