Will the RBA be forced to raise the cash rate?

With the release of this data print, economists have deliberated that the Reserve Bank of Australia (RBA) may be more inclined to raise interest rates in the upcoming August board meeting given the RBA’s heightened vigilance towards upside risks to inflation.

However, the possibility still remains that the RBA will opt to hold the official cash rate should the June quarter CPI data return within the board’s forecast of 3.8 per cent.

Commenting on the May CPI data, owner and manager of Mortgage Choice Berwick, David Thurmond, said that the RBA will “have a tough decision in August”.

“Reducing Inflation is their priority … and their only lever is interest rates. But it’s too early to call … we still have June inflation figures due late July that will ultimately tell us where rates will go in August,” Thurmond said.

Aaron Christie-David, mortgage broker and founder of Atelier Wealth, said the data does not look positive for those with a mortgage and this “could mean we’re bracing for a rate hike”.

“The next key inflation data is the full quarterly inflation reading which is due July 31 and I’m sure the nation will be anxiously waiting on the outcome to see what the RBA’s possible move will be,” Christie-David said.

“It’s clear that rate cuts are off the cards at the moment and the best-case outcome is for the RBA to hold rates though be prepared for the RBA to get on the offensive and increase the cash rate.”

Principle finance broker at Unconditional Finance, Chris Raymond, said this recent development “puts pressure on the RBA to consider tightening monetary policy”.

“With this said, the decision will depend on a broader range of economic factors, including employment trends and overall growth. A potential rate rise could be on the cards in the 2nd half of the year (in my opinion) if inflation trends persist,” Raymond said.

What should brokers do to help clients ahead of time?

With the possibility of a rate hike around the corner, clients will likely reach out to their broker to discuss their options.

Thurmond said that brokers should “always make themselves available for one-on-one conversations with any client concerned about their financial position”.

“One of the biggest reasons broker market share continues to grow is because our value is more than just writing a home loan,” Thurmond said.

“A quarter of my weekly meetings are with existing clients concerned about making ends meet. Refinancing is a solution for some, but many no longer qualify because of the higher rates, so the discussion then shifts to budgeting, reducing expenses and managing savings to help weather the storm.”

Similarly, Christie-David said that clients should look to refinance as soon as possible rather than “sitting back and waiting”.

“It also means we, as brokers, need to prioritise rate reviews for all clients and reprice as much as we can. Let them know you’ll be doing this on their behalf and when they can expect it to be done so they are updated rather than chasing you to do this,” he said.

“If you have a feel for which clients are struggling already then it may be worth picking up the phone and ensuring that they are supported now rather than falling into arrears.”

Raymond said that they have been “proactively engaging” with all existing clients to reprice existing loans, review loan conditions and explore refinancing options where suitable in preparation for a potential rate rise.

“In such a competitive market, if you don’t reach out to your clients, another broker will,” Raymond said.

“Having the rate impact discussion in the early stages of all inquiries and forecasting the impact of a rate rise on repayments helps us empower our clients to make informed decisions and mitigate the financial impact of a potential rate hike.”

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