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Rising inflation could be the deciding factor for the central bank to resume increasing interest rates.
The Reserve Bank of Australia (RBA) has given reprieve to borrowers for four consecutive months, leaving the official cash rate on hold at 4.1 per cent since the June monetary policy meeting, however, members of the broking industry are now expecting the central bank to once again lift rates on the back of the September quarter Consumer Price Index (CPI) data.
Finsure Group chief executive Simon Bednar said that he believes another rate increase by the RBA is “inevitable” today (7 November), due to persistent inflation and “continued pressure on rents, fuel prices and electricity”.
“I don’t think the RBA have any choice but to go [up] 25 basis points now and see if there is any impact before Christmas,” Mr Bednar said.
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“A big question is not just whether they decide to lift rates on Melbourne Cup Day, but if they go again in December or wait until February to give families a break over the summer holidays.”
However, Mr Bednar noted that it is uncertain whether the RBA can wait until the February meeting given that “inflation has bucked up”.
“This is despite the RBA’s original optimism after hiking rates 400 basis points since May last year, that the next movement could be a decrease,” he added.
Echoing this, general manager – brokers at Home Loan Experts, Bhisan Raj, said the larger-than-expected inflation increase in the September quarter left it “highly likely” that the central bank will increase the cash rate again today (7 November).
“At the Connective national conference last week, one economist advised that an increase was likely and would probably be a quarter point, as the Treasurer has advised previously that the RBA would most likely continue with that increment,” Mr Raj said.
“He also said the likelihood of the RBA increasing the rate is 60/40 or 70/30.”
Indeed, the September quarter CPI rose 1.2 per cent and 5.4 per cent annually, as annual inflation continued to drop from the 7.8 per cent peak in the December 2022 quarter.
Regarding the rate predictions, managing director of the Finance Brokers Association of Australia (FBAA) Peter White AM has expressed deep concern over the expectations of a rate hike and the possible ramifications it may have on the mental health of Australia's borrowers.
"Australia’s finance and mortgage brokers are not health professionals, but we do hear the human stories as we assist many people who are struggling to make repayments far higher than what they were paying and had budgeted for.
"We are able to assist many people but there are some we cannot simply because lenders won’t refinance them," Mr White said.
Furthermore, he cited a survey conducted by the FBAA which found "a huge spike" in people seeking psychological aid among other counselling services due to rising interest rates.
"I fear another rise may rapidly exacerbate this," Mr White said.
"I understand the need for the RBA to do what they feel is best for the nation economically, but surely as a society we also have to consider the human cost."
However, not all are convinced that a rate hike will occur in today’s meeting, as Home Loan Experts CEO Alan Hemmings said earlier this week there is still a chance for another hold.
“I think the RBA has got an opportunity to leave [rates on hold] for another month and just see what is actually happening with inflation because the big driver of inflation at the moment is fuel costs,” Mr Hemmings said.
The CPI result has spurred on major bank economists to call a rate hike for November to bring the official cash rate up to 4.35 per cent.
Another hike risks higher levels of mortgage stress
If the predictions of another rate hike come to fruition, the latest Roy Morgan research has warned that the number of mortgage holders considered to be “at risk” of mortgage stress will increase to 30.4 per cent to 1,581,000.
Roy Morgan CEO Michele Levine said the current data sits at a “record high” as the RBA’s interest rate increases continue to flow through the mortgage market.
“The figures for September 2023 take into account all 12 RBA interest rate increases, which lifted official interest rates from 0.1 per cent in May last year to 4.1 per cent by June 2023,” Ms Levine said.
“The RBA’s decision to leave interest rates unchanged in recent months came as inflation decreased compared to earlier this year.
“However, in recent months inflation has ‘reaccelerated’ and moved upwards. The latest ABS CPI monthly figures for the year to September 2023 show Australian inflation at 5.6 per cent, up 0.4 per cent points from August and up 0.7 per cent points over the last two months.”
[RELATED: Brokers busy preparing clients for potential rate hike]
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