Inflation May Have Peaked, But Interest Rates Probably Haven’t, Predicts RMIT Expert


Mortgage holders in Australia hoping for relief amid an apparent levelling out of rising inflation rates had better think again warns an economics expert, with interest rates likely to continue rising until later in the year, and cuts not expected until as late as 2025.

The Reserve Bank of Australia (RBA) has executed 11 consecutive rate hikes since May 2022. Dr Peng Yew, a lecturer in the School of Property, Construction and Project Management at RMIT University in Melbourne, said the economic pain wasn’t over yet.

“Although inflation seems to have peaked, albeit at a still stubbornly high 7 per cent, the RBA has reiterated its commitment to bringing inflation within 2 to 3 per cent,” said Dr Yew.

National Australia Bank are predicting the RBA will lift the cash rate three more times before September 2023. Along with Westpac and ANZ, they’ve also forecast interest rate cuts, but not until 2024 and 2025.

“If the major banks’ predictions are correct, it is reasonable to expect the mortgage interest rate will stay high, and even potentially continue to rise, in 2023 and into 2024,” he said.

Australians are already struggling under the rising cost of living. After 11 cash rate hikes, a home loan mortgage rate is now around 5.6 per cent, meaning the repayment on a 25-year $600,000 NAB base variable mortgage will have climbed approximately $1,500 a month. At the same time, the borrowing power of homebuyers is reduced.

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“These factors are negatively impacting the housing market,” Dr Yew said. “These issues give rise to further emerging housing supply issues.

“As the housing market dips, a significant number of would-be sellers have (and are likely to continue to) withdraw from the market, resulting in fewer [available]properties.

“Approximately 1,730 properties were put under the hammer across the nation’s capitals in the last week of April, which was significantly lower than the 2,699 in the same weekend last year, according to an ABC report.”

Mr Yew said the building sector is also experiencing high levels of upheaval and hardship.

“Australian Securities and Investments Commission data reveals 1,236 companies in the construction sector that have gone into liquidation, receivership or administration in March 2023, further impacting homebuilders and housing supply,” he said.

“All these factors have impacted negatively on the supply of housing, which is strongly tied to our emotional state and day-to-day life choices. Housing also represents the largest wealth component for Australians – even higher than our superannuation.

“It is important that the Government takes action to alleviate pressure on mortgage owners, renters, homebuyers and the building industry at this time.”

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