Australian economy predictions 2024: Grim reason interest rate pain will continue
There’s a common belief that Aussies can expect much-needed rate cuts in 2024, but there’s a key reason to be sceptical.
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Families could be waiting until 2025 for home loan rate relief, according to a leading Australian economist who has outlined a grim scenario for the next year.
Breaking ranks with the majority of economists, who are predicting a modest rate reduction in the spring of 2024, Richard Holden, an economics professor at UNSW Business School, has tipped the pain could continue for at least another year.
“I really think the RBA won’t cut [rates] in 2024,” Dr Holden told news.com.au.
“What I think is going to happen is the RBA is going to be nervous about raising them. But if inflation is really not coming down, I can see them doing another 25 basis points.”
As inflation remains higher in Australia compared to the US and the UK, there’s growing consensus that Australia is likely to trail other countries in pivoting to interest rate cuts.
“The mistake a lot of commentators are making is they think the RBA is terrified of a recession,” Dr Holden said.
“Of course, the RBA does not want a recession. But the main issue they want to tackle is inflation.”
Dr Holden predicted relief may have to wait for 18 months or even longer, nominating “mid to late 2025” as the most likely time rates will fall.
Dr Holden said a “narrative” had taken hold in Australia to expect at least one rate cut in Australia in 2024.
But Dr Holden said there were good reasons to be sceptical.
“Start with the raw facts. Australia has done less to get inflation under control, and made much less progress than the US [and other countries],” he said.
“Taking all this together, a more plausible scenario for Australia in 2024 is that interest rates do not fall — and if anything may rise a little more to get inflation under control.”
Dr Holden said it was a “critical lesson for Labor’s next election campaign.”
“It’s a really, really bad idea to tell people how awesome the economy is doing when the voters don’t feel that way,” he said.
But Westpac’s economic spokesperson Luci Ellis, formerly the assistant governor of economics at the RBA, said she was still pencilling in a September quarter rate reduction.
“My views haven’t changed in recent times,” she said.
“As long as inflation doesn’t surprise further on the other side, they don’t need to do more.
“They might still do more if they have an inflation surprise. They are clearly hypersensitive to inflation shocks.
“But there is no real necessity for them to do that. Particularly, as we’ve seen inflation expectations stay anchored.
“Our current forecasts, predicated on inflation continuing to decline as the RBA expects, we think they’ve got some room towards the end of this year to take out some of the contractionary policy.
“We have pencilled in September as the first as the first rate cuts … or sometime around the end of the year.”
Anthony Albanese has opened the door to new cost of living measures for struggling families in the upcoming May budget amid soaring rents and mortgage increases.
The Prime Minister dangled the hope of further relief at a press conference in Sydney where he signalled he remained “positive” about the New Year.
“Our priority will be to provide cost of living relief while taking pressure off inflation,” Mr Albanese said.
“I have asked Treasury and Finance to come up with further propositions that we’ll consider in the lead-up to the May budget this year.”
Originally published as Australian economy predictions 2024: Grim reason interest rate pain will continue
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