Warning Signals: RBA Set to Implement 'At Least' Two More Rate Hikes, Top Central Bank Observer Alerts

29th April 2024

The property market has started the year with some serious momentum and many property experts and economists have stated that the strong nature of the market is due to two key factors.

The first of these factors is the large number of potential sellers who have chosen to wait for further potential property price gains rather than sell now.

This has led to a significant lack of properties for buyers to choose from creating enough buyer competition to lift property prices.

The second factor is that buyers are acting on the assumption that the interest rate cycle has peaked and that the next stage of interest rate movements would be a string of rate cuts.

This belief has seen buyers choosing to pay more under the belief that rate reductions would soon see their mortgage repayments come down significantly.

Unfortunately for both buyers and sellers, the interest rate cuts that have been expected to commence at some point during 2024 now appear unlikely.

With much higher than expected inflation figures released last week, there has been a loud chorus of respected economists suggesting that the next interest rate move is in fact likely to be up and that more than one rate rise this year may be needed to cool inflation.

Whilst these latest forecasts will sway many buyers away from purchasing, the thought of further rate rises is expected to be the catalyst for a substantial lift in new sellers choosing to fast forward their plans and sell now.

The reasons for this are many and varied and include a likely considerable lift in mortgage stress if rates were to rise even just once.

There will also be an immediate increase in listings from those that have chosen to hold off from selling due to the perception that property prices would continue to rise as interest rates started to fall.

Whilst it's impossible to know with any certainty what may lie ahead for property prices, for sellers looking for a sign that now is the time to sell, this week's news should act as strong motivation.

With buyer activity currently strong and low stock levels still impacting the property market, our recommendation to potential sellers should be as follows -

We don't know what the future holds for property prices but if you choose to sell now you can still take advantage of wonderful selling conditions and achieve a fantastic price.

If you choose to wait, economic factors are now suggesting that you may see higher interest rates, more distressed sellers and less overall buyer competition.

In short, if a potential seller is looking to time the market and sell at or near the peak of this cycle, there is growing evidence to suggest that they should be looking at selling now.

We have this week included as our lead story an article released on Friday by news.com.au that looks at what may happen next with interest rates and why.

We have also included the HTW Valuers Market Update for the month of April.

We start this week with an analysis of where interest rates may be headed from news.com.au.

Please see below 

RBA to inflict ‘at least’ two more rate hikes, top central bank watcher warns

Stubborn inflation, strong jobs growth, and a rebounding economy could force the Reserve Bank to deliver further rate hikes, economists have warned.

Interest rates risk going higher still, economists have warned, as stubborn inflationary pressures, rebounding economic growth, and continued tightness in the jobs market could force the Reserve Bank to inflict further pain on household borrowers.

Traders have also built up their bets that the RBA could lift interest rates again, and on Friday ascribed a 52 per cent chance of a hike at the central bank’s August meeting; a stark reversal of the 70 per cent odds of a cut at its December meeting earlier this week.

While the majority of economists still expect the RBA’s next move will be a cut, Judo Bank chief economic adviser Warren Hogan, who correctly predicted Australia’s interest rate path in 2023, tore up his interest rate forecast on Thursday following a string of firmer-than-expected data.

Mr Hogan now predicts the RBA will deliver “at least” two additional rate hikes in August and September, with a further increase in the cash rate on the cards at the central bank’s November meeting.

Previously, he had predicted that the RBA would commence rate cuts in 2025.

Three 25 basis point rate hikes would bring the official cash rate to 5.1 per cent – its highest level since 2008.

If a 75 basis point increase in interest rates was passed on in full, the move would add a further $374 to monthly repayments for an owner-occupier with a $750,000 variable rate mortgage, according to analysis by Compare the Market.

“Two or three rate hikes by the end of the year puts us back on the RBA’s “narrow path” because we’re definitely wandering off it right now,” Mr Hogan said.

“The key thing for the long term stability of the economy and most importantly ensuring that inflation gets down and we get rid of this cost of living crisis, is that we have rates set at the right level for the economy.”

Fresh inflation data, showing consumer price growth accelerated in the first three months of 2024, had added to the economist’s concerns that the economy was running too hot.

“We’re getting some horrendously big price increases for education and insurance and the rental story is a disaster,” Mr Hogan said.

“They’re not going to go away if the economy’s doing okay.”

Following Wednesday’s hotter-than-anticipated reading, markets all but erased the odds of a rate cut this year, with interest rate futures ascribing just a 19 per cent chance of easing at the RBA’s December meeting.

Continued resilience in the labour market alongside an improvement in business activity and sentiment had also added to Mr Hogan’s central case that the RBA would recommence its monetary tightening.

Given the upside surprise in the CPI figures and ongoing resilience in the labour market, Capital Economics on Friday followed suit, altering its forecasts to also predict a resumption in rate hikes.

“There’s a solid case for the Bank to flip the switch and resume its tightening cycle.” Capital Economics’ Abhijit Surya said.

“We expect the RBA to prioritise burnishing its inflation-fighting credentials by hiking rates by another 25 basis point in May.”

HSBC chief economist Paul Bloxham also agreed that the recent acceleration in inflation meant that further tightening could not be taken off the table.

“There is a risk that they will actually have to lift their policy rate even further,” he said, adding that the central bank could also push out its timeline for when inflation would ease below 3 per cent.

“It’s clear that in the short run, the RBA is going to have to upgrade their inflation forecasts, but the question will be whether they can still be getting inflation back to the target band over the same horizon as they previously forecast.”

Staff forecasts released by the RBA in February showed inflation returning to the bank’s 2 to 3 per cent target band in the six months to December 2025.

The prospect of further rate hikes would also hinge on federal government policy, including spending decisions made in the May budget and the stage three tax cuts.

“It’s pretty clear that we need fiscal policy to be helping to continue to put downward pressure on inflation,” Mr Bloxham said.

“If it ends up stimulating the economy, it could add more to inflation and make the RBA’s job even harder.”

Mr Hogan also remarked that the tax cuts posed an inflationary threat, remarking that their July 1 commencement meant they would come at the “worst possible time” for the Australian economy.

“A $23 billion boost to household incomes when you’re trying to get spending down and when you’re operating in the economy through its capacity – it really is the last thing you need,” he added.

While not forecasting an additional rate hike, EY chief economist Cherelle Murphy said ongoing threats could make further declines in inflation challenging.

“New supply chain risks and rising oil prices from escalating tensions in the Middle East, ongoing strong demand for housing, and a tight labour market will continue to concern a Reserve Bank determined to get CPI back into the target band from mid-2025,” Ms Murphy said.