A finance expert has predicted the Reserve Bank of Australia will keep rates on hold during its May decision, but there could be more trouble for homeowners on the way.
AMP Capital head of investment strategy and chief economist Shane Oliver said the Reserve Bank will stand firm on Tuesday’s cash rate decision.
While he predicted the central bank would keep it at 4.35 per cent, Dr Oliver did not rule out the possibility of an increase at some point.
Economists have warned that rates could rise further throughout the year as the economy continues to grow and keeps inflation above projected levels.
Economists predict the RBA will hold the cash rate during Tuesday’s rate decision, but have not ruled out the possibility they could raise the rate (file image)
Dr Oliver warned the RBA could adopt a “restrictive bias” that would prevent Australians from buying a home or other big purchases.
According to Dr Oliver, a restrictive bias hits the pockets of ordinary Australians, even without a mortgage or other major loan.
“The tightening of the bias has an effect on you, as a home buyer, for example, you think, ‘well, maybe it’s the right time to get in now because it’s going to go down,'” he said. news.com.au.
“But if you hear that rates may go up again, then your urgency to go there and buy a new house is less.”
“More generally, when making spending decisions, people might think, ‘Okay, I’ve been through this so far with my mortgage, maybe I can spend a little more because it looks like rates are going down.'”
“And suddenly they say ‘it could increase’ – it will change people’s spending habits.”
He noted there is a chance the RBA could raise the rate, but such a decision would be “an overreaction.”
Australian homeowners could be waiting longer than expected to see mortgage relief from the Reserve Bank as they try to rein in inflation (file image)
The RBA opted to keep the cash rate at 4.35 percent in March and will announce its next decision on May 7.
Headline inflation moderated to 3.6 per cent in the March quarter, down from 4.1 per cent in the December quarter, new Australian Bureau of Statistics data released last week revealed.
But underlying measures of inflation were well above the Reserve Bank’s 2 to 3 per cent target.
The weighted median, excluding volatile prices to focus on average increases, produced an inflation reading of 4.4 percent.
The trimmed mean, the RBA’s preferred measure based on an average rise without big movers, rose 4 percent.
This was well above the Reserve Bank’s February prediction of a 3.6 per cent level by June 2024.