Home owners can expect two more interest rate rises, one before Christmas and another in February, according to Bendigo Bank’s chief economist David Robertson.
Mr Robertston said last week that the further rate hikes would take the official cash rate to a ‘neutral setting’ in early 2023.
“The RBA delivered its seventh consecutive rate hike this week, adding to the record cumulative increase in the official cash rate this year; but thankfully again only 25 basis points, as forecast last month,” he said.
“We expect a further increase of this size in December and February, taking the official cash rate to 3.35%, or a ‘neutral’ setting’.
“The logic behind the quarter per cent increase (in contrast to the US and UK hiking rates 0.75% this week) centred on the lag between rate hikes and seeing an impact on the real economy, the likely decline in inflation next year as supply chains gradually repair, and the fact that the RBA meet monthly, unlike most other central banks.
“The key question ahead for 2023 is whether a neutral rate will be sufficient to tame inflation, particularly after last week’s CPI figures showed a rise in core inflation to 7.3%, more than double target at 6%.
Mr Robertson said that while he expected a more restrictive RBA cash rate would pose stronger headwinds to some asset values, forecasts point to a plateau in rates next year, in the mid threes.
“Monetary policy will do its part in tackling inflation but fiscal policy faces challenges via structural deficits ahead due to an ageing population and a lack of productivity growth,” Mr Robertson said.
“Government net debt as a percentage of GDP is very low as detailed in the October budget at 22.5%, keeping our coveted AAA credit rating safely intact. Deficits are forecast to build from financial year 2025 however suggesting the nation has around three years to lift productivity via structural reform to address these challenges ahead.”
