Interest rates Australia: Calculate the impact: When rate rises will end

Rate rise relief could come to struggling homeowners before the end of the year, amid predictions the RBA could ease its bull-at-a-gate approach to inflation sooner rather than later.

Borrowers could be in for some earlier than expected rate relief ahead of Christmas, as economists forecast a cut to the cash rate as soon as November.

The Reserve Bank increased the cash rate for the ninth consecutive month on Tuesday, lifting it 25 basis points to 3.35 per cent, adding $12,000 a year to the mortgage repayments on an average loan.

A slowdown in building activity as a result of higher interest rates coupled with a rise in unemployment and a drop in consumer spending could prompt the RBA to cut rates for the first time since the tightening cycle began later this year, economists said.

RBA governor Philip Lowe hiked rates for the ninth month in a row on Tuesday.

Out of the big four, CBA forecast a cut this year, while NAB, Westpac and ANZ tipped a cut in 2024.

Commbank head economist Gareth Aird said the first decrease could come as early as November.

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Commonwealth Bank Head of Australian Economics Gareth Aird.

“The cash rate is already at a restrictive level. If you are running restrictive policy, your economy will be growing below trend, which is what we have forecast,” Mr Aird said.

“If an economy is growing below trend, the unemployment rate is rising.”

“There will come a point where they (the RBA) don’t want the unemployment rate to keep rising and that’s where cuts come onto the agenda.”

He said inflation would need to be moving in the direction of the 2-3 per cent band set by the central bank for a cut to occur.

Macquarie University economics professor Geoffrey Kingston said a cooling of the labour market plus a drop in monthly inflation to 2 per cent in annual terms could prompt the RBA to cut.

Experts say unemployment would need to rise before rates could be cut.

“There’s a decent chance that the cash rate will start falling late this year or early next year,” Mr Kingston said.

Housing Industry Association chief economist Tim Reardon said a February hike made a cut before the year’s end more likely.

He said the full impact of last year’s hikes hadn’t yet been felt due to a 6-18 month lag between a rise in the cash rate and its impact on the wider economy.

“We’ve seen the fastest rise in the cash rate in a generation and it’s time to observe what the impact is going to be,” Mr Reardon said.

“It’s a risk that what the RBA does is go too far too soon.”

“They might find themselves in a situation where they need to stimulate home building in order to prevent a rise in unemployment.”

The RBA may need to cut rates to stimulate home construction.

He said the latest lending indicators suggested a slowdown in the building industry once the current pipeline was complete.

“Lending for the construction of a new home was 64 per cent lower than what it was in January 2021,” he said.

“We can see in all the lending indicators that that slowdown is coming.”

PropTrack economist Cameron Kusher said there was potential for a cash rate cut in late 2023 or early 2024 if inflation fell quicker than expected.

“Given we’ve just had the largest and fastest interest rate tightening cycle in decades, it will take time to see this reflected,” Mr Kusher said.

PropTrack economist Cameron Kusher.

“Low interest rates encouraged households to take on more debt.”

“Rates have risen so quickly they have wiped-out serviceability buffers that were in place during the pandemic.”

“In my opinion, a combination of these factors could result in a larger slowdown in economic growth and household consumption this year than is currently being forecast.”

ANZ senior economist Felicity Emmett said a cut in 2024 was more likely due to the current strength of the labour market and the length of time it would likely take to bring services inflation down.

“We think inflation will remain quite sticky and slow to come down,” Ms Emmett said.

“Because of that we don’t expect the RBA will be in a position to cut probably until late 2024.”

“That will mean monetary policy remains relatively restrictive for some time.”

ANZ senior economist Felicity Emmett.

Bendigo Bank chief economist David Robertson said he didn’t expect a cut until late 2024 or early 2025.

“For the RBA to cut rates, you’d need two things to happen,” he said.

“Firstly, you’d need to have core inflation back within their 2-3 per cent band – and I can’t really see that happening until late 2024 at the earliest.”

“Secondly they’d need to be in favour of moving from a tightening bias to an easing bias.”

“Certainly, if unemployment was a lot higher, say above 5 per cent, you could see why they might prefer to have an easing bias.”

UNSW finance professor Kristle Romero Cortés said it would take high unemployment and a recession to bring the cash rate down.

“We will first see a period of small and stable rate rises, followed by no rate changes, and then if the economy shows economic distress, rates will fall.”

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