A prominent Australian economist has feared the Reserve Bank of Australia’s (RBA) “over egged” Tuesday’s interest rate rise, which now has the “genuine” potential to push the country into a recession.
Stephen Koukoulas, who was previously an economics advisory to the Prime Minister’s Department, believed Tuesday’s Melbourne Cup rate rise of 25 points went “too far”.
Australia’s official cash rate now sits at 4.35 per cent, the highest it’s been since November 2011, following 13 increases in 18 months.
Appearing on 60 Minutes, Mr Koukoulas said there were signs the economy was slowing down, and the interest rate hikes needed more time to work. Instead, he accused the RBA of “overprescribing the medicine for a problem that’s already been fixed”.
“They didn’t need this last interest rate hike because the economy’s slowing down, inflation’s falling, unemployment’s going up,” he said.
The risk is now that the “over tightened interest rates” could lead to a “hard landing” for the economy, and plunge the country into recession. In technical terms, this is classified as two consecutive quarters of negative growth in real GDP, the last of which was recorded in 1991.
“There’s a real risk that the RBA has over egged it,” said Mr Koukoulas.
“(Economists) really dislike them intently … they cause economic pain, they cause people to lose jobs,” he said.
He said there was “close” to a 50 per cent, “genuine” chance of a recession.
“So it’s a line ball call,” he said.
“We’ll be watching the data just like the Reserve Bank … to see whether that’s a real probability.”
Following her first rate rise, as the new RBA governor, Michele Bullock said the hike was needed to stem inflation.
“Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago,” she said.
“The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly.”
Mr Koukoulas said he believed rates would likely fall between March to May 2024, and told borrowers they were “almost through the worst of it”.
“For people with a big mortgage, yes, hang in there, beg, steal, or borrow to make your repayments. If you can get through this difficult period of high (and) cost-of-living pressures, then there’ll be a sigh of relief for everybody.”