’Tis the season for RBA to ‘take its foot off the interest rate pedal’, says Raine & Horne

In light of the latest inflation data, the national real estate firm called on the Reserve Bank of Australia (RBA) to “take its foot off the interest rate pedal”.

Executive chairman of Raine & Horne, Angus Raine, called on the central bank to consider taking a pause on hiking the cash rate during its monetary policy meeting today, 6 December. 

Since May, the Reserve Bank has started its rate rise cycle to keep inflation under its 2 to 3 per cent target band. The rapid monetary policy tightening saw the cash rate rise from a record low of 0.1 per cent to 2.85 per cent, which resulted in mortgage holders getting hit with higher repayments. 

“I urge the RBA to wait until next year and assess the impact of successive interest rate hikes since May on inflation and consumer confidence before taking further action on interest rates,” Mr Raine said.

He reiterated a similar argument made by Real Estate Institute of Australia (REIA) president Hayden Groves, who cited the slowing pace of the consumer price index (CPI) as a cause for the RBA to take a step back from its fight against inflation. 

According to the Australian Bureau of Statistics (ABS), the monthly CPI for October rose 6.9 per cent in the previous 12 months. 

Mr Groves explained that the figures showed a decline from the September quarter, which recorded an annual rate of 7.3 per cent.

“The current rate is below the budget forecast of 7.75 per cent and the RBA’s forecast of 8 per cent,” he added. 

With data indicating that inflationary pressures have peaked, Mr Groves believes it is time for the RBA to ease up on its interest rate hikes at its year-end meeting. 

“There are lags between the RBA raising its cash rate and lenders passing on these increases to borrowers. Further, it takes many months for any shifts in household spending behaviour to show up in economic data,” the REIA executive stated.

Drawing his own conclusions from the data, Mr Raine stated that “there is little doubt that seven successive rate hikes have had their desired effect”.

Mr Raine cited a report from AMP showing a buyer on average full-time earnings with a 20 per cent deposit has seen a 25 per cent decline in their home-buying power since April. 

Notably, the RBA governor Philip Lowe has recently issued an apology to Australians who took out home loans in 2020 and 2021 on the belief interest rates wouldn’t increase until 2024.

While Mr Raine lauded the RBA governor’s decision to take an unprecedented and candid move, he said that “it’s time for the central bank to consider a pause on rate hikes”. 

“The risk is that further increases in mortgage rates will start to push total mortgage payments and place too much strain on household budgets. 

“This is likely to result in a sharp rise in mortgage stress — particularly as fixed rate loans reset next year,” Mr Raine cautioned.

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