Homeowners, who have already been smashed by 13 interest rate rises and the cost of living crisis are facing a nervous wait on what happens next as the Reserve Bank of Australia is set to announce its latest move.
The RBA has been meeting for the first time since it held interest rates at 4.35 per cent in March.
There are fears that rates could be increased again as employment holds strong and inflation remains difficult to contain, but the majority of economists have forecast that the RBA will hold rates in May.
KPMG chief economist Brendan Rynne said he expects interest rates to remain on hold for much of 2024 before a possible cut towards the end of the year.
“The biggest threat to this – and of inflation taking off again – is fiscal policy going into expansion mode in next week’s Budget,” he noted.
Canstar’s Group executive financial services Steve Mickenbecker said the blowout in inflation in the March quarter, up 0.4 per cent from the prior quarter to 1 per cent, means that borrowers are not out of the woods yet.
“Cash rate cuts are likely to be pushed back and if we don’t see lower inflation in the June quarter a rate increase later this year will be the next bitter pill for borrowers to swallow,” he said.
Economists are concerned that inflation isn’t dropping as quickly as the RBA had projected and there is a danger that rates may need to rise again.
The consumer price index increased 3.6 per cent in the 12 months to March which was above the RBA’s indicative forecast of 3.5 per cent.
A Finder survey of economists and experts found all 36 believed the RBA will once again hold the cash rate in May.
Macquarie University Business School’s Geoffrey Kingston said the CPI report for the March quarter was ugly and that it may not be cuts on the way, but hikes.
“News from overseas was similarly bad. On the other hand, March retail sales were weak,” he said.
“The [Reserve] Bank will probably sit on its hands for several months. However, ongoing high government spending and the July tax cuts may combine to force a rate rise sometime this summer.”
However, AMP chief economist Shane Oliver said he was still expecting a rate cut this year.
“Inflation is still coming down so we still expect a rate cut this year, but March quarter inflation was higher than expected particularly for services inflation and so we have delayed our expectation for the first rate cut to year end,” he said.
It comes as alarming new research found households are more financially stressed now than they were during the peak of pandemic lockdowns.
The ANU’s Centre for Social Policy Research found an estimated 34.2 per cent of Australians were finding it difficult or very difficult on their current income – the highest rate since February 2020.