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Experts predict the RBA will keep interest rates on hold

With inflation cooling, experts have predicted the Reserve Bank of Australia (RBA) will keep interest rates on hold, in what would come as welcome relief for struggling households.

According to Finder, 67 per cent believe the RBA will hold the cash rate at 4.10 per cent in August, with only 28 per cent predicting another hike.

Of those forecasting a hike, 83 per cent expect to see a 25 basis point rise, which would see the official cash rate hit 4.35 per cent.

Lead economist for China and Australia at Moody’s Analytics, Harry Murphy Cruise said inflation had dropped ahead of schedule and the RBA has room to keep rates on hold.

“What goes up must come down and Aussie inflation is coming down fast,” Mr Murphy Cruise said.

“Last month, we put the chances of a further interest rate hike at slightly greater than even odds. 

“The June inflation data has tipped those odds the other way.”

He said inflation will track lower from here. 

“By the end of the year, we see inflation sitting at 3.9 per cent year on year,” he said.

“It should return to the RBA’s 2 per cent to 3 per cent target band by the September quarter of 2024 almost a year ahead of the RBA’s projections.”

Queensland University of Technology Finance and Investment expert, Noel Whittaker said he expected the RBA to hold rates steady for now, but they would likely need to hike again in September.

“I think the Reserve Bank would be looking for an excuse to put rates on hold given the amount of anecdotal evidence that the interest-rate rises are having some effect on consumer spending,” Mr Whittaker said.

“However, July has been a big month for price increases, but they are not reflected in last week’s CPI figures. 

“But they will be in play at next month’s board meeting.”

AMP Capital’s Chief Economist, Shane Oliver said he expected a hike this month but the decision could easily go either way.

“Our base case is now for just one more rate hike as the RBA likely remains concerned about high and still rising services inflation and upside risks to wages growth,” Mr Oliver said.

“However, the RBA has likely already done enough and inflation is now falling rapidly so it’s a very close call.”

The panel’s forecast for the cash rate peak has now decreased slightly from an average of 4.54 per cent to 4.4 per cent, suggesting there is still room for at least one more cash rate increase.

Money expert at Finder, Richard Whitten, said if the RBA kept rates on hold, homeowners would breathe a sigh of relief. 

“This will be welcome news to the rising number of homeowners who are already struggling to pay their mortgage,” Mr Whitten said. 

“If the RBA does hike the cash rate in August, it will be death by a thousand cuts for many.”

According to Finder, 40 per cent of Australian homeowners say they struggled to pay their mortgage in July, up from 26 per cent this time last year, and 21 per cent in July 2021. 

And with the fixed rate mortgage cliff looming, 64 per cent of experts expect the proportion of households in mortgage stress to peak between August and December this year.

Mr Whitten said many borrowers were already on the brink.

“A dozen cash rate rises in close succession has hit many household budgets hard, but the worst is likely yet to come,” he said.

“Our panel is largely in agreement that the combination of cash rate hikes and the expiry of more fixed rate loans will see mortgage distress reach a peak over the coming months.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.