Westpac economist Bill Evans tips rates to remain on hold until late 2024.

Well-respected economist Bill Evans believes interest rates will remain on hold until late next year when home borrowers will finally get some relief and the RBA will start cutting.

Veteran economist Bill Evans is doubling down on his forecast for rates to remain on hold until September quarter next year when he expects the Reserve Bank of Australia to cut rates by 25 basis points.

RBA governor Philip Lowe will preside over his last RBA monthly board meeting on Tuesday and the market widely expects rates to remain on hold at 4.1 per cent.

Mr Evans first flagged the possibility of rates staying on hold after the RBA’s August meeting but on Friday said the case for waiting is clear and should extend until at least October next year.

“With inflation slowing more rapidly than the board, and other central banks had expected; evidence of an easing in wage pressures; household spending struggling; and further effective mortgage increases embedded in the system, the policy of moving to the sidelines is now clearly the favoured approach,” he said.

“We think this should remain the case until the September quarter next year when inflation, growth, and unemployment have established a very clear message that will allow the board to begin the process of unwinding the rate hikes.”

He said it was unlikely that rate cuts would come before the September quarter next year.

“In the first half of 2024 the board will be facing a tight labour market; potential delays in the beginning of the Fed’s easing cycle; and ongoing momentum in house prices,” he said.

“While still falling, inflation will be stickier in the first half of 2024 as the contraction in goods inflation eases and services inflation remains elevated.”

Westpac chief economist Bill Evans. Picture: John Feder/The Australian.

HSBC chief economist Paul Bloxham said the economy appeared to be on the ‘narrow pathway’ to a ‘soft landing’, as the RBA had hoped.

He said since the last board meeting, the evidence pointed to growth slowing but not contracting outright.

“Growth in retail sales values has weakened and, given inflation, volumes are likely to have declined,” he said.

Core inflation still remains too high, with some areas of persistent price pressures, such as rents, and other services prices, key upside risks.

However, he said spending on services is expected to have held up better, with surveys showing that business conditions still show solid positive momentum in activity, despite some easing.

Mr Bloxham believes there will be another hike delivered in the fourth quarter this year, stating the risk is the RBA just maintains current settings for longer.

“We do not see cuts on the horizon anytime soon,” he said.

This comes as a surprise re-acceleration in home prices and activity occurred in August, with dwelling prices rising by 1 per cent across the eight capital cities as CoreLogic reported a 15.5 per cent drop in total advertised housing supply.

CBA economist Belinda Allen says the unexpected strength in home prices – since they bottomed in February – will “unnerve” policymakers who continue to fight consumer demand and price pressures.

CBA has now upped its home price rise expectations to 7 per cent in 2023 – after its earlier forecast of 3 per cent growth was met in May, with gains in calendar 2023 to August sitting at 4.7 per cent.

Prices are expected to rise by a further 5 per cent in 2024.

“The lack of new listings on the market, tight rental markets and strong population growth have pushed up prices more than expected,” she says. ”The risk continues to lie to the upside given the supply and demand imbalance in the market and as we anticipate a rate cut cycle in 2024.”