RBA rate cuts: Warning over ‘nightmare scenario’ ahead

Australians hoping for cheaper mortgages face a longer wait, with rate cuts unlikely for at least six months as the Reserve Bank holds fire amid resurgent inflation and rising power bills.

Following the sharpest quarterly CPI rise since March 2023, and as energy rebates roll off, Compare the Market economic director David Koch warns the pause could extend well into next year – and a surprise hike in the first half can’t be ruled out.

This comes despite at least two major banks still tipping that a rate cut could be on the cards in either February or May.

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“If inflation keeps coming in like this then we might not see any cuts at all,” Mr Koch said.

“The nightmare scenario is that this is the first sign of inflation starting to trend up again. If that’s the case, we could even see the Reserve Bank increase the cash rate in the first half of next year.

“We’ve all been fed this line by a lot of economists that we could see two or three more rate cuts in the coming months. I reckon the idea of any more rate cuts in the next six-nine months is seriously in doubt now.

“My guess is that we won’t see a rate cut for at least six months, unless the December quarter inflation figure, which is out at the end of February, shows some dramatic improvement.”

Source: Compare the Market

Mr Koch added that continued price rises should serve as a reality check for governments to align their policies.

“You get a sense just talking to people that living costs are going up and inflation is bouncing back up,” he said.

“Compare the Market’s Household Budget Barometer found 93 per cent of people believe there has been no easing in the cost-of-living crisis.

“Energy rebates were keeping that inflation figure artificially low. Now they have rolled off, we’re seeing energy price rises in full effect – and it’s hurting.”

TV Presenter and Compare the Market economic director David Koch says homeowners could wait another six months for another rate cut.

As for homeowners hanging out for a rate cut, Mr Koch advises they are better off trying to wrangle a discount on their own.

“If you’re waiting for the Reserve Bank to move then you could be waiting a long time – and that means missing out on potential savings in the meantime,” he said.

“Take a look at what rates are leading the market. If your bank won’t match them, it might be time to switch over.”

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