Will interest rates go up this week or are the hikes finally over? Here's what the experts predict

Will interest rates rise again this week? It’s the $2.15 trillion decision – and it’s on an absolute knife edge.

The financial markets are pricing in a 75 per cent chance of a hold being announced by the Reserve Bank of Australia (RBA) in the 4.1 per cent cash rate in its August decision – just like it did in July – but the country’s top economists are completely divided.

The latest Consumer Price Index (CPI) data revealed a slowing in inflation, rising just 0.8 per cent in the June 2023 quarter, down on the March quarter’s 1.7 per cent, but at a 6 per cent annual rate, it’s still well above the RBA’s preferred band of 2 to 3 per cent.

“I’m going for the hold because I’m an optimist!” said Ray White chief economist Nerida Conisbee.

“Our group view is that we’ll have a rate hike, but it is a line ball call,” said Westpac Business Bank chief economist Besa Deda.“We have them on a hold,” said NAB senior economist Gareth Spence.

And Housing Industry Association (HIA) chief economist Tim Reardon said, “We think they’ll go up but just by 15 basis points to send a signal that the RBA will be finishing its rising cycle.”

Meanwhile, EY chief economist Cherelle Murphy isn’t making a call at all. “The slowing in the quarterly rates of price growth eases pressure on the RBA to raise rates again in August, with the data suggesting that its dozen rate hikes since May 2022 are working as planned,” she said.

“But with inflation still far above the Bank’s 2-3 per cent target band, and some ongoing upside risks to wages and food prices, we are not out of the danger zone yet.”

The one thing everyone can bank on, however, is that the end is nigh. That’s good news, especially for those home buyers who still owe $1,448.5 billion in outstanding mortgages on their owner-occupied housing, and the investors with $707.1 billion of debt, a total of over $2.15 trillion according to latest Statista Research Department figures.

All of Australia’s leading economists agree that there’ll only be one or two cash rate hikes left before a lengthy pause on rates, and then a gradual reduction. So, we’re nearly finished.

“We expect inflation to come back further in the September quarter with people no longer going on overseas summer holidays, even though rents are still climbing at a pretty rapid rate,” Conisbee said.

“The US Federal Reserve has just increased its rate, however, even though inflation was just 3 per cent. But the RBA is moving carefully.”

Certainly, the Australian Bureau of Statistics CPI figures do give the RBA some breathing room that would allow a pause. 

That quarterly inflation rate is now the lowest since September 2021, said ABS head of price statistics Michelle Marquardt.

Most of that was due to the rising cost of goods and services, like rents, international holiday travel and accommodation, other financial services and new dwellings, both the prices for fuel and domestic holidays came down.

But at Westpac, that still points to the likelihood of another rise. “Yes, we could afford another pause, but then we can’t be fully convinced that the current cash rate is at the peak,” said Deda. 

“Inflation is coming down but it’s still a long way over that target band.

“But we do think that we’re nearly at the peak. We’re moving into a slowdown, but businesses are starting that from a position of financial strength, so that’s a good position to be in.”

At NAB, Spence believes the RBA has done a lot in a very short period of time – with 12 cash rate rises since May 2022 – but, while he’d predicting a hold for August, he says there remains more work to do.

“We are very near the top rate, and there’s only some fine-tuning to do now,” he said. 

“The RBA would like to see more data that spending is slowing overall and on the labour market and wages, but in the meantime they’ll be happy to wait and see the impact of the previous rises and see more of the global factors in inflation unwind.

“We’ll now see one or maybe two more rate rises, but we are very close to the top and rises of 25 or 50 points won’t make a huge difference, bearing in mind the low rate we came from.”

The HIA’s Reardon forecasts a rise on Tuesday of just 15 basis points, as that will turn 4.1 per cent into a much tidier 4.25 per cent for everyone’s Excel spreadsheets.

“That could be the final correction and signal the end of the rises,” he said. “We’re just starting the see the impact of the first set of rises after very long and treacherous lags, and inflation is slowing and the costs of building materials are coming back to normal.

“We expect building next year to be at its lowest level for a decade and we haven’t seen the full impacts of the rate-rise cycle yet, so any further rises will risk the rest of the economy slowing too far.”