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A chief executive of a brokerage has said the central bank may lift the cash rate further if inflation fails to moderate.
While it’s believed that the Reserve Bank of Australia (RBA) has settled into an extended hold period, CEO of Home Loan Experts, Alan Hemmings, stated the next move for the RBA could see rates go higher.
Speaking to REB's sister brand The Adviser on the prospect of whether or not the RBA will cut interest rates before the US Federal Reserve, Hemmings replied that he expects neither central bank to cut interest rates in 2024.
“In Australia, our inflation rate is not within our 2–3 per cent band, and the tax cuts in July will also put pressure on inflation, as everyone will have more money to spend. In the US, there are signs that inflation is trending up,” Hemmings stated.
“The next move for the RBA and the Fed could, in fact, be an increase.”
Hemmings told The Adviser that inflation in Australia is still not under control, despite the inflation rate having “dropped dramatically” over the last few months.
“If you look at underlying inflation, there is a marked difference. [Inflation] for goods is definitely down, but for service, which includes items like rent, it’s still sitting above 4 per cent,” Hemmings said.
While the RBA will consider the parts of the economy that are currently under control, overall inflation still remains above the target band, according to Hemmings.
As for the timeline of when these interest rate increases may occur, Hemmings said it will depend on the March quarter inflation data due for release on 24 April.
“I think there might be one or two [rate increases] in the next eight months if needed,” Hemmings said.
“And then we see some cuts next year, but I don’t think we’ll see a cut this year either.”
On the other hand, senior mortgage broker at Home Loan Experts, Jonathan Preston, said he believes that RBA could cut rates sooner than its North American counterpart.
“The RBA will cut the rate sooner than the US because spending is much worse here than in the US. Australia is in a major per capita recession, but the immigration is masking it,” Preston stated.
“I don’t think we will see rate cuts soon. It’s highly unlikely in 2024. The next move might be upwards, as rents and ongoing oil strength will keep CPI higher than what the RBA wants to see.”
According to the ASX’s RBA Rate Tracker, market expectations on interest rates were 92 per cent for no change and 8 per cent pricing in a decrease to 4.1 per cent (as of 17 April 2024).
As of the March monetary policy decision, RBA governor Michele Bullock and the RBA board have remained tight-lipped about exactly when rate cuts could happen, indicating that the board is still very much dependent on crucial datasets such as the Consumer Price Index (CPI), GDP, and Labour Force data.
Despite this, bank economists predicted when they believe interest rate cuts will occur, although there is still no general consensus, with the first cut ranging from happening in September to well into 2025.
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