Mark Bouris says RBA is ‘playing with fire’ and predicted a rate hike of 0.25%
Australian entrepreneur Mark Bouris has questioned whether the Reserve Bank has gone “too hard” as struggling homeowners brace for more interest rate pain this afternoon.
The RBA board is holding its March meeting today and is expected to raise the official cash rate by another 25 basis points to 3.6 percent — the highest level since 2012.
In conversation with leading economist Stephen Koukoulas for The mentor podcast last week, Bouris, the millionaire entrepreneur and founder of Wizard Home Loans and Yellow Brick Road, claimed that the Australian economy was “close to the real sharp end of the deal”.
But the pair made the surprising prediction that while the March rate hike was all but inevitable, some relief could soon be on the horizon for struggling families.
Bouris asked Mr Koukoulas if the RBA had “gone too far”, to which the former Citibank chief economist replied that the board was “playing with fire”.
They both acknowledged that the RBA had no choice but to raise rates again on Tuesday as they were already priced into the market.
“They can’t shock the market by holding on, no, that’s been done,” Mr Koukoulas said, adding that the RBA was now “at risk of going a little too fast and not being patient”.
And they acknowledged that two more hikes after today’s were also already priced into the market, despite preliminary evidence from the economy that inflation may start to come down and that the economy has “definitely” already started to slow.
“So they have a really tough balancing act about how much more hikes they actually need and then…will we start talking about rate cuts in 2024?” Mr. Koukoulas asked.
Bouris then pointed to Westpac chief economist Bill Evans, who recently said he expects up to seven rate cuts by 2024/25.
“He’s talking about a few more hikes first as the market has priced in because the Reserve Bank is so aggressive and you know inflation is still high, global conditions are impacting us in Australia, the slowdown in inflation in the US is not possible. as soon as many people would fear, so they’re pricing in more rate hikes from the US Federal Reserve… Bill [is] in a sense, they are saying that they have to keep walking, even in a weak economy, to push this inflation back to target,” Mr. Koukoulas said.
“But when they get to it, they’ll be able to say, ‘we’ve leaned on the economy enough now, we can take some of the pressure off the economy’ — that’s where I think he gets the seven rate cuts.”
The pair noted that we were now in the midst of “the biggest hike cycle since the early 1990s”, saying the RBA was deliberately trying to influence Australians’ spending behavior to reduce inflation, by deliberately increasing the amount of cash that was available to them.
“If we don’t have the money, we’re not going to spend,” Mr Koukoulas said.
“If you make X dollars, you allocate Y dollars to your mortgage, so you’re left with that to spend on vacations and cars and also essentials…if they raise interest rates, that raises that interest portion of your income.
“If your interest payments go up, say $1,000 a month, that’s a lot of money — it means $12,000 less to spend elsewhere in the economy, so in a sense your cash flow has changed even though you’re getting the same pay. ”
However, they said that while inflation was still relatively high, other fears expressed by the RBA, including a potential wage-price series — where wages continue to rise, drive up prices, which in turn pushes wages and prices even further — have failed to materialize. it came out. pointing out that Westpac’s Bill Evans actually downgraded his outlook for wage growth.
They predicted that after today’s hike in April, May and possibly June, the RBA would “wait and see” what impact previous increases had on the economy before considering another one.
“I’m willing to bet a bottle of nice red wine that this is it – the RBA just can’t keep walking,” Mr Koukoulas said, pointing out that while inflation was way too high, it’s moving in the right direction started to go. direction, and that wages, the unemployment rate and house prices were all at ‘neutral’ levels, meaning that more immediate increases did not seem necessary.
Meanwhile, Bouris hinted that divisive RBA Governor Philip Lowe may not be in the top job by the end of the year, and that his replacement could be more inclined to cut rates and admit that their predecessor ” went too fast”.
“There are rumors that a rate cut cycle could start in early 2024, so it’s time for the races,” said Mr Koukoulas, adding that we were entering a “grey area” but were “close to the end of the rate increase cycle”.