Financial expert David Koch has warned Australians they could face another interest rate hike on Melbourne Cup day if inflation fails to moderate.
New Reserve Bank Governor Michele Bullock on Tuesday left interest rates unchanged at 4.1 percent, their highest level in 11 years, but she hinted that rates could rise again as the inflation is still too high.
‘Kochie’, the former Sunrise host and now Compare the Market’s economic director, said a poor September quarter inflation figure could lead the Reserve Bank to raise rates again in November, the day of the Melbourne Cup.
“If this shows a turnaround, and a substantial turnaround better than expected, the Reserve Bank, in all its comments, as it has for months, has said it is prepared to combat this with a further rate increase of interest,” he told Daily Mail Australia.
New government charges and utility bill increases came into effect on July 1 and there are fears that could fuel September quarter inflation data, due on October 25.
Financial expert David Koch (pictured with his wife Libby) has warned Australians they could face another interest rate hike on Melbourne Cup day if inflation fails to moderate.
“You have seen many price increases over several financial years and I am concerned that this could surprise on the upside. That’s why it’s crucial,” he said.
Inflation in the June quarter rose 6 per cent and Kochie said a deterioration in the September quarter figures could give the Reserve Bank an excuse to act.
A weakening of the Australian dollar over the past month – from 65 US cents to 63 US cents – is also making imports more expensive, worsening inflation.
“The falling Australian dollar, which makes imports more expensive, that’s what they will be watching,” Koch said.
Another rate hike on Melbourne Cup Day on November 7 would see monthly repayments on average for a $600,000 mortgage rise by $99 to $3,908 as borrowers on a home loan million dollars saw their reimbursements climb from $165 to $6,513.
This is based on a Commonwealth Bank variable rate rising to 6.79 per cent, from 6.54 per cent, to reflect the RBA raising rates by 25 basis points to reflect the cash rate hitting a 12-year high by 4.35 percent next month.
“If people think the Reserve Bank is going to be their white knight on interest rates and impose rate cuts early next year, that’s not the case,” Koch said.
“I don’t think we’ll get any rate cuts until at least the second half of next year, so this is going to last longer than expected.”
Less comprehensive monthly inflation figures for August brought bad news, with the CPI climbing to 5.2 percent, up from July’s level of 4.9 percent.
This put the consumer price index still above the Reserve Bank’s target of 2 to 3 per cent, with petrol prices soaring 14 per cent over the year.
“Inflation in Australia has passed its peak but remains too high and will remain so for some time to come,” Ms Bullock said on Tuesday.
“There are great uncertainties about the outlook.
New Reserve Bank Governor Michele Bullock on Tuesday left interest rates unchanged at 4.1 percent, their highest level in 11 years, but she hinted that rates could rise again as the inflation is still too high.
“Service price inflation has been surprisingly persistent overseas and the same could happen in Australia.”
Ms Bullock strongly suggested another rate hike was possible to bring inflation back to target by June 2025, as Australians grapple with a 13 per cent rise in electricity and utility bills. gas and double-digit price increases for bread and dairy products.
“Further tightening of monetary policy may be necessary to ensure that inflation returns to its target within a reasonable time frame, but this will continue to depend on data and evolving risk assessments,” he said. she declared.
“Returning inflation to its target within a reasonable time frame remains the board’s priority.
“High inflation makes life difficult for everyone and harms the functioning of the economy.”
August’s CPI rise marked the first monthly deterioration in the annual headline inflation rate since April – with the cost of living worsening for the second time since its 32-year peak of 8.4 percent, in last December.
The futures market is also worried, with investors betting on monetary policy now expecting a rate hike in early 2024 instead of a rate cut as recently expected.
The National Australia Bank expects a rate hike in November, making it the only one of the big four banks – for now – to forecast another rate rise.
A record 454,400 migrants moved to Australia in the year to March and Koch said strong population growth would lead to higher unemployment, although it helped keep Australia out of recession until now.
“Vacancies are going down and also this massive migration that is coming, which should start to see unemployment increase because there is no job creation there at the moment to match the massive migration flows that are coming.” , did he declare.
“Five hundred thousand new Australians in a year is pretty tough to absorb – it’s great for retailers because it means 500,000 new customers have come into the country – without them retail would be evil and we would probably be in recession.’
Ms Bullock suggested that excessive wage prices, at a time of falling productivity and a low unemployment rate of 3.7 per cent, could worsen inflationary pressures until unemployment reached 4.5 per cent. by the end of 2024.
“There are also uncertainties about lags in the effect of monetary policy and how business decisions on prices and wages respond to slowing growth in the economy at a time when the labor market stay tense,” she said.
“Wage growth has accelerated over the past year, but remains in line with the inflation target, provided productivity growth accelerates.”
On Tuesday, interest rates remained unchanged at their highest level in 11 years, at 4.1 percent (stock photo).
Shortly before the RBA’s rate decision, new Australian Bureau of Housing Finance Statistics data showed a 2.2 per cent increase in August, with the value of owner-occupied loans increasing by 2.6 per cent. .
Adam Boyton, head of Australian economics at ANZ, said the Reserve Bank was likely to keep rates unchanged, but a hike was more likely than a cut.
“Even if the RBA continues to take an extended pause, signs in the August monthly CPI that inflation may be a little higher than expected are consistent with the risk that the RBA could tighten again this year or early next year,” he said.
Ms Bullock replaced Philip Lowe as Australia’s most powerful central banker last month, following anger over the RBA’s 12 rate hikes in just over a year, with the latest hike taking place in June.
The futures market is worried, with investors betting on monetary policy now expecting a rate hike in early 2024.
This is the most aggressive pace of monetary tightening since 1989, causing monthly mortgage payments to rise 63 percent since the cash rate fell from a record low of 0.1 percent.
Tuesday’s board meeting was the first chaired by a woman since the Reserve Bank was established in 1960.
Ms Bullock replaced Philip Lowe on September 18, after her suggestion in 2021 that rates would remain unchanged until 2024 “at the earliest” led Treasurer Jim Chalmers to refuse to extend her term to 10 years.
