RBA chief Michele Bullock’s first rate hike was a ‘mistake’, economists say

With the economy on the brink of shrinking, new RBA Governor Michele Bullock must declare there will be no more rate increases, experts say.

The most recent rate hike was a “mistake”, experts say, given Australia’s nearly non-existent economic growth.

GDP figures released this week revealed that the nation would be in recession were it not for record-high migration, as consumer spending nosedives in response to intense cost of living pressure – including from rapid rate increases.

Analysis by CBA shows interest paid on housing debt is up nearly 40 per cent over the past year and has soared by a “massive” 162 per cent from pandemic lows.

Total discretionary spending on eating out, clothing and recreation fell by 1.6 per cent in 2023, as bills for electricity, rent, food and health hoovered up household budgets.

The decline in spending was made worse by a rate hike in November — the first under new Reserve Bank of Australia Governor Michele Bullock but the 13th since May 2022.

RBA Governor Michele Bullock in February. Picture: NCA NewsWire / Martin Ollman

In announcing that 0.25 per cent increase, Ms Bullock said it was needed to bring down inflation to an acceptable level in a reasonable time frame.

“In my view that November rate hike was a mistake,” Deloitte Access Economics partner Stephen Smith said on Thursday.

“It was clear at that time that the economy was already going to slow and that inflation was coming down from the peak.”

Betashares chief economist David Bassanese said: “With hindsight, it wasn’t needed.”

However, Mr Bassanese did volunteer that he had supported the hike when it was announced.

Mr Smith said that like consumers, businesses are suffering, with insolvencies on the rise. Growth was being propped up by government spending.

Betashares’ David Bassanese Picture: John Feder

Monetary policy – which is managed by the RBA – and government-run fiscal policy should start to switch from containing inflation to stimulating growth, Mr Smith said.

Mr Bassanese said migration had “added at least a couple of per cent to economic growth over the past year.”

To put that in context, the GDP result for 2023 was a weaker-than-expected 1.5 per cent, meaning migration was the difference between expansion and contraction.

NSW had net overseas migration of 174,000 in 2022-23, which is the most recent period for which data is available. The average over the past 20 year has been 72,000.

The main countries migrants came to NSW from in 2022-23 were India (27,500), China (27,100) and Nepal (16,600).

Mr Bassanese noted that in February, the RBA had still been talking about the possibility of raising rates again.

He said he thought Ms Bullock needed to “take rate hikes off the table” in her next public comments.

Like many economists, he is forecasting multiple rate cuts this year, with the first to come in August.

On Thursday, housing finance approvals data for January showed a surprising and substantial decline of 3.9 per cent.

Westpac economist Matthew Hassan said the RBA’s November rate hike was one of the factors “weighing more heavily on owner occupier activity.”

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Originally published as RBA chief Michele Bullock’s first rate hike was a ‘mistake’, economists say