Warning Australia will fall into a deep recession if the Reserve Bank doesn’t cut interest rates in 2023
Australia faces a deep recession if the Reserve Bank doesn’t start cutting interest rates by Christmas, major banks warn.
Tuesday’s 0.25 percentage point rise has taken the policy rate to a new 10-year high of 3.35 percent, marking the ninth consecutive monthly rise.
Three of Australia’s big four banks — Commonwealth, Westpac and ANZ — are now expecting two more rate hikes that would take interest rates to an 11-year high of 3.85 percent by April or May.
AMP Capital’s chief economist, Shane Oliver, said another quarter-point rate hike — if interest rates rose to 4.1 percent — would trigger a severe recession.
“If we go much further along the path of raising rates in response to inflation, which is a lagging indicator, while ignoring the lagged flow of rate hikes into the economy, there is a risk that signs of a slowdown in demand and an improvement in supply will economy into a recession that we don’t see need to have,” said Dr. Olivier.
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Australia faces a deep recession if the Reserve Bank doesn’t start cutting interest rates by Christmas, major banks are warning (pictured at an auction in Melbourne last year).
He referred to former Labor Treasurer Paul Keating’s famous joke – ‘this is the recession Australia had to have’ – to note that this would be the first interest rate-induced recession since 1991.
The head of Australia’s economy at the Commonwealth Bank, Gareth Aird, said the RBA must cut interest rates by half a percentage point in the December quarter of 2023 “to avoid a hard landing”, followed by cuts of 50 basis points by the first half of 2024 .
Mark Bouris, the founder and former chairman of Wizard Home Loans, said the Reserve Bank’s focus on fighting inflation would be disastrous for the economy.
“People will panic, people will stop buying homes, small business owners will collapse or go out of business and homeowners will stop spending,” he told Nine’s Today Show on Wednesday.
“In my view, this is catastrophic.”
Mark Bouris, the founder and former chairman of Wizard Home Loans, said the Reserve Bank’s new intention to prioritize fighting inflation first would be disastrous for the economy (pictured to his left is Canstar editor Effie Zahos).
Tuesday’s 0.25 percentage point rise has taken the policy rate to a new 10-year high of 3.35 percent, marking the ninth consecutive monthly rise
Treasurer Jim Chalmers downplayed a suggestion that higher interest rates would lead to a recession, citing his department.
Rate hikes increase monthly repayments
$500,000: Increase by $77 to $2,752 from $2,675
$700,000: Increase by $108 to $3,853 from $3,745
$900,000: Increase by $139 to $4,954 from $4,815
Increases are based on a Commonwealth Bank floating rate, which rises from 4.97 per cent to 5.22 per cent to mirror the Reserve Bank of Australia’s cash interest rate, which rises from 3.1 per cent to 3.35 per cent
“Treasury Department projections assume that higher interest rates combined with difficult global conditions will significantly slow our economy, but they do not anticipate a recession here in Australia at this time,” he told ABC Radio National.
Inflation rose 7.8 percent last year, the steepest annual pace since 1990 and at levels well above the RBA’s target of 2 to 3 percent.
Mr Bouris said the RBA had failed to explain when it would start cutting rates based on a moderation in inflation levels.
“They never indicated where the turning point came from,” he said.
“There’s a lot of confusion and to be honest and I think a loss of confidence in the Reserve Bank.
“They got it wrong 18 months ago, I think they got it wrong now.
“From my point of view, that’s bad politics because nobody knows what’s going on.”
ANZ was the first major bank to pass on the RBA’s latest rate hike, with its floating rate for borrowers with a 20 percent deposit from 4.94 percent to 5.19 percent on Feb. 17.
NAB was next, increasing its equivalent floating rate from 4.99 percent to 5.24 percent, also effective February 17.
Should the Commonwealth Bank do the same, as expected, its floating rate would rise from 4.97 percent to 5.22 percent.
The futures market revised its forecasts for interest rates of 3.9 percent through July
A CBA borrower with an average mortgage of $600,000 would increase their monthly repayments by another $93 to $3,303 versus $3,210.
Annual repayments would be $11,964 higher than in early May 2022, when the Commonwealth Bank offered a 2.29 percent floating rate below a record-low RBA cash rate of 0.1 percent.
RBA Governor Philip Lowe changed his language on Tuesday to warn of further rate hikes to fight inflation after famously hinting that rates would remain unchanged in 2021-2024.
“The Board believes that further rate hikes will be needed in the coming months to ensure inflation returns to target and that this period of high inflation is temporary,” he said.
‘The Board remains committed to bringing inflation back to target levels and will do whatever is necessary to achieve this.’
The futures market revised its forecasts for interest rates of 3.9 percent through July.
https://www.dailymail.co.uk/news/article-11724453/Warning-Australia-deep-recession-unless-Reserve-Bank-cuts-rates-2023.html?ns_mchannel=rss&ns_campaign=1490&ito=1490 Warning Australia will fall into a deep recession if the Reserve Bank doesn’t cut interest rates in 2023