Economist Saul Eslake is one of nine experts to predict a rate hold at the RBA’s May meeting.
The RBA is tipped to hike the cash rate again at its May meeting, as inflation remains too high, but research shows that not all experts are so sure.
Three quarters of the 36 economists canvassed for Finder’s RBA Cash Rate Survey are predicting the third hike of the current tightening cycle.
But there were nine naysayers, who are instead predicting a shock hold by the central bank.
These economists cited reasons such as underlying inflation, low consumer confidence and global volatility when explaining why now was not the time for another hike.
Chief among them was well-known economist Saul Eslake, principal of Corinna Economic Advisory Pty Ltd.
MORE: Borrowers to feel five rate hike shock
“Although headline inflation rose sharply in March, ‘underlying’ inflation was unchanged from February at 3.3,” Mr Eslake said. “Yes, that’s still above the top end of the RBA’s inflation target band, but no more than it was a month ago. And the increase in fuel prices has a similar impact on aggregate household finances to a further increase in interest rates.
“So if ‘underlying’ inflation hasn’t risen further, the RBA doesn’t need to raise rates again in May (since it’s already raised them twice this year). It can afford to “wait and see” what happens to inflation expectations.”
Some experts believe RBA Governor Michele Bullock will hold rates in May. Picture: Martin Ollman
James Morley of University of Sydney also pointed to underlying inflation.
“The fact that underlying measures of inflation did not go up too much in the March report and developments in the Middle East … may well lead the RBA to hold at this meeting as a way of moderating the pace of rate increases given the conflicting tensions of a supply shock on inflation and the real side of the economy. Prior to the inflation report, I thought the RBA would increase, in part in anticipation of an expansionary federal budget. But I suspect they will hold.”
Adjunct Professor Noel Whittaker of QUT said a hold was “the only practical option”.
“To me, it would be economic madness to raise rates in this time of uncertainty,” he said. “And even though a recession is forecast, it’s not happening yet. So they won’t be dropping them.”
David Robertson of Bendigo Bank said he expects two more RBA hikes in this cycle, but urged restraint in May.
“I’d prefer to see a less aggressive approach especially with Consumer Confidence falling to a record low,” he said.
Evgenia Dechter of UNSW said the “main driver” of the latest inflation reading was “higher oil prices”.
Laing + Simmons’ Leanne Pilkington said the RBA should “think twice” before hiking.
“The oil shock and the Middle East conflict were already factored into the RBA’s previous decision,” Dechter said. “So this time the RBA may prefer a wait-and-see approach as more data come in, especially with business and consumer confidence looking weak.”
Leanne Pilkington of Laing + Simmons agreed.
“It is clear that the major culprit is fuel. People are already experiencing pain relative to higher rates each time they fill up their car, so the RBA should think twice before adding to this pain, especially just before the Budget,” she said.
Jeffrey Sheen of Macquarie University, Stephen Miller of GSFM and Cameron Murray of Fresh Economic Thinking were also in the ‘hold’ camp.
Richard Whitten, home loans expert at Finder, said another rate rise would be a bitter pill to swallow for households already reeling from rising costs.
“Another rate rise would take the cash rate back to its 2024 peak, but the economic environment is tougher now,” he said.
Finder’s home loans expert Richard Whitten.
“Inflation has continued to rise in that time, meaning Australians are in an even worse position than they were two years ago.
“While default rates remain low, and the RBA likely believes borrowers can handle a slightly elevated rate, it’s hard to imagine rates going much higher without something breaking.”
English (US) · 