Interest rates: Shock warning on when cuts could finally happen

Australians hoping for mortgage relief face months of continued financial pressure as experts warn interest rates could even rise following last week's shock inflation data.

Interest rates and cost of living pressures are forecast to put more strain on household budgets next year.

Australian households are being warned to brace for months of mortgage and cost of living pain with some experts predicting rates could even increase in the coming months.

Last week’s shock inflation rate crushed hopes there would be an official interest rate cut at the Reserve Bank’s Melbourne Cup Day meeting.

Compare the Market’s economic director David Koch said a rate hold was all but set in stone, but last week’s inflation figures mean rates will almost certainly hold on Tuesday and if the trend continues rates could increase in the new year.

“If inflation keeps coming in like this then we might not see any cuts at all. The nightmare scenario is that this is the first sign of inflation starting to trend up again,” he said.

Reserve Bank of Australia Governor Michele Bullock. Picture: John Appleyard

“We could even see the Reserve Bank increase the cash rate in the first half of next year.

“We’ve all been fed this line by a lot of economists that we could see two or three more rate cuts in the coming months. I reckon the idea of any more rate cuts in the next six to nine months is seriously in doubt now.

“My guess is that we won’t see a rate cut for at least six months, unless the December quarter inflation figure, which is out at the end of February, shows some dramatic improvement.”

RSM Economist Devika Shivadekar said she didn’t expect a rate cut before the new year, saying cuts earlier this year seem to have boosted the economy.

“Earlier rate cuts appear to be gaining traction, lifting consumer sentiment and encouraging spending. This renewed momentum is likely to catch the RBA’s eye, and we expect it will prompt them to hold rates steady at the November meeting,” she said.

Compare the Market economic director David Koch

“It’s worth noting that October and November typically see a seasonal uptick in hiring, as many people start new roles ahead of the usual Christmas hiring freeze. This dynamic could lead to a rebound in employment figures.

“In such a scenario, our base case is that the RBA will remain on hold until February 2026.”

On whether rates may increase, Ms Shivadekar is unsure.

“As of information on hand today, it’s unlikely but you never know how the data might turn. A longer pause seems like a more viable option,” she said.

All four of the major banks are also pessimistic there will be rate cuts until at least February.

But Mr Koch warned there could be more than just interest rates hitting people’s pockets in the new year.

“People are still getting hit by price rises. Hopefully this last week’s inflation jump is a reality check for governments to align their policies a bit more on this because inflation isn’t an inanimate object – it’s being driven by many factors in the economy and government projects can have a big influence,” he said.