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Charts show when RBA will cut interest rates


It’s the single chart that tells homeowners everything they need to know about what the future holds for interest rates and when they’ll start to fall.

And the news is gloomy for next year, according to financial markets, with another rate hike a real possibility and cash rates expected to stay higher for nearly a year.

Australians will suffer more financial pain after the Reserve Bank of Australia decided to raise interest rates by 0.25 percent to 3.85 percent.

It means those with an average loan of $586,000 will spend about $14,000 more annually compared to what they paid around this time last year.

But according to the Australian Securities Exchange futures market, interest rates in Australia will not peak until September, with another rate hike a real possibility, and remain high until early next year

The ASX futures market predicts that interest rates will peak in September 2023

The chart suggests that the official cash rate — now 3.85 percent — will reach nearly 4 percent in September-October.

Since the RBA tends to increase in 25 basis point increments, that suggests another rate hike in the spring.

Rates will not lag current levels until March 2024 as the RBA fights inflation. But by October 2024, the cash rate could fall to about 3,380 percent, suggesting several rate cuts next year.

The ASX’s 30-day interbank cash rate futures are not foolproof. Last month, the Reserve Bank left interest rates unchanged.

But after the RBA stunned the market by raising rates again on Tuesday, the chart now suggests homeowners should brace themselves to expect more pain later this year.

ANZ predicts another rate hike in August

According to ANZ’s head of the Australian economy, Adam Boyton, another rate hike should be budgeted for in August.

“The RBA surprised us and the market by cutting 25 basis points to 3.85 percent,” he said.

“Looking further ahead, some further tightening of monetary policy may be necessary to ensure that inflation returns to target within a reasonable timeframe, but that will depend on how the economy and inflation evolve.

“The reference to inflation in that sense, the importance of the quarterly inflation data for a more comprehensive picture of price pressures on services and the importance of the inflation forecast profile all suggest (in the absence of an upside surprise on the activity data) that August is the most likely period for an extra step by the Bank.

“With 3.85 percent, is the Bank ready? Given our view of the economy, we see no reason to relax this year.”

Shane Oliver, AMP’s chief economist, thinks the RBA has “done enough” but fears another rate hike is possible.

“We think the RBA has done more than enough and we have hit the spike in rates. Continuing to raise interest rates from here increases the risk of the economy going into recession,” he said.

“However, given high inflation, the still tight labor market and the RBA’s still aggressive outlook, risks are still on the upside for interest rates. However, by the end of the year or early next year, we still see the RBA starting to cut rates.”

But Barclays predicts that Tuesday’s rate hike will be the last and rates will fall next year.

“We now think the bank’s walking cycle is over and the next step next year will most likely be a Q1 cut,” the bank said.

“We think the RBA has risen even after softer inflationary pressures, as the window for higher rates closes quickly, especially as global central banks approach the end of their own tightening cycles.

“The bank’s projections suggest that no further increases are likely to be needed.”

Treasurer Jim Chalmers urges action

Treasurer Jim Chalmers has been urged to reverse the RBA’s shocking decision to raise rates, but the odds are slim that this will happen.

Amid fears that the latest increase could lead to a recession, the government has been urged to take the unprecedented step of direct intervention.

“The RBA’s decision to raise interest rates again is implausible and will crush tenants and mortgage holders even harder than they have already been crushed,” said Greens Senator Nick McKim.

“The RBA is out of control. Jim Chalmers must use his powers and intervene and reverse this terrible decision.”

Senator McKim, by the RBA’s own admission, said rate hikes are the wrong response to an inflation spike caused by corporate profit-seeking and supply-side problems.

“If Dr Chalmers refuses to act, it will be tacit approval of the RBA’s decision and will mean that he supports rate hikes,” he said.

Earlier, the treasurer evaded the question of whether the Reserve Bank’s “brutal” rate hike could plunge Australia into a recession.

Rates ‘cheeky reminder’ of inflation challenge

The treasurer admitted that the RBA’s shock move was a “brutal reminder” of the inflation challenge, but stopped short of reassuring homeowners that a recession was not imminent.

“I think the rate hike is really a pretty stark, pretty brutal reminder of the tough economic conditions,” Dr Chalmers said.

“And I think people are generally aware that we have an inflationary challenge in our economy. People feel it every day.”

“Are you concerned that the RBA will tighten rates to the point that [it] could the country drift into a recession?” the treasurer was asked.

In response, the treasurer said he had no intention of “re-guessing the decisions made independently by the Reserve Bank.”

“As you know, my work is different. It is to hand over a budget that is carefully aligned with the economic conditions we are facing now,” he said.

“The Reserve Bank, the Treasury, I think almost everyone expects the Australian economy to slow significantly later this year.

“I think that is the inevitable consequence of higher interest rates combined with the global slowdown. And so the Reserve Bank’s projections reflect that the Treasury’s projections reflect that as well.

“And inflation is coming down from its peak around Christmas, but it’s still higher than we’d like for longer than we’d like and the projections will reflect that.

“Our job is to provide a responsible cost of living, to do what we can without adding substantially to this inflationary challenge that we have in our economy.

“And the best way to do that is to prioritize the most vulnerable and the best way to do that is through, say, the energy bill, which I’ll detail in the budget, where electricity prices are at stake. don’t let it rise that much.” as what they expected the last budget to do.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.