Experts say RBA could hike rates sooner than 2024

Experts and economists are starting to speculate that the Reserve Bank of Australia may increase interest rates sooner than it has previously stated, with next week’s federal budget possibly having a big influence on any decision.

The RBA today held the official cash rate at 0.1 per cent, again reiterating that rates would not likely be increased until 2024 at the earliest due to a combination of subdued wages growth and low inflationary pressures.

RBA governor Philip Lowe said the central bank would not increase the cash rate until a tight labour market generated enough wage growth that actual inflation would sustainably reach a range of 2 per cent to three per cent.

Finsure managing director John Kolenda said that position may change if the Australian economy continued to rise on the back of lower than anticipated unemployment and fiscal stimulus measures expected in the May 11 budget.

“While the inflation data we are seeing remains subdued, the RBA has been maintaining its stance that rates will not be moving up for a few more years, which provides continued comfort for mortgage holders,” Mr Kolenda said. 

“Despite the removal of the federal government support stimulus in response to COVID-19 such as JobKeeper payments, the national unemployment rate remains encouraging. 

“The economy has bounced back from the pandemic in pretty good shape.

"The RBA will now be awaiting the impact of measures in next week’s federal budget which could further boost the economy and lead to a review of its rate rise forecasts.” 

While just 15 per cent of the 40 experts and economists surveyed by Finder this month said they expect the cash rate to rise in the coming financial year, banks are already chopping and changing fixed-rate loans in anticipation of a hike. 

Last week, Ubank increased its three-year fixed rate loan by 10 basis points to 1.85 per cent, following Westpac’s move to increase its 4-year fixed rate loan to 2.19 per cent. 

Research by RateCity.com.au shows there are now just six four-year fixed rates under 2 per cent on offer, down from 32 at the start of the year. 

Shorter term fixed rates remain ultra-competitive, RateCity research director Sally Tindall said, in an indication banks may be preparing to make broader changes to fixed and variable rates in the near future. 

“The RBA isn’t intending to hike the cash rate until at least 2024, but many home loan rates will rise earlier, particularly fixed ones,” Ms Tindall said. 

“Banks are already hiking their four- and five-year rates, while three-year rates are likely to be the next cab off the rank.  

“We expect some of them could start moving north in the second half of this year. 

“For anyone who hasn’t recently refinanced, it’s not too late to shop around for a better deal, whether that’s fixed or variable.” 

Bendigo Bank’s David Robertson was one expert surveyed by Finder who expected the RBA to act sooner than it has previously announced.

"The RBA will most likely start to tighten policy by an increase in interest rates in early 2023 or late 2022, the timing dependent on the pace and success of vaccination programmes,” Mr Robertson said.

Property and finance commentator Peter Boehm was another who backed the possibility of an earlier hike.

"It’s steady as she goes for now as far as the RBA's cash rate is concerned,” Mr Boehm said.

“But while the RBA has signalled it will keep rates low for the next two to three years, its hand may be forced if inflation starts to increase. 

“We are already experiencing material house price growth, and now with a shortage of skilled migrant labourers, there is increasing upward pressure on wages. 

“These (and other) factors, if allowed to continue their upward trend, may see interest rates rise sooner than expected."

On the flipside, AMP Capital’s Shane Oliver said while Australia’s economic recovery from COVID had been stronger than expected, the RBA was still a long way away from seeing its stated requirements for a rate hike.

In addition to inflation reaching between 2 and 3 per cent, the RBA is targeting wage growth of more than 3 per cent before it will consider lifting rates.

“A rate hike is still a fair way off, although I think it will come before the RBA”s expectation for ‘2024 at the earliest’,” Mr Oliver said.