Economists issue stark warning: Reserve Bank's interest rate hike could push Australia into recession
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In today's challenging economic climate, finding good news is becoming increasingly difficult. Everyday items' prices are constantly rising, making it tough to save money no matter how hard one works. Now, there are fears of yet another bump in the road ahead for Aussies.
A leading economist, Shane Oliver, who holds the position of AMP Chief Economist, has warned about a potential recession.
He believes that a single decision by the Reserve Bank could trigger this economic downturn. Specifically, if the Reserve Bank decides to raise interest rates once again, it could raise the chance of Australia entering a recession to an alarming 50 per cent.
If this scenario unfolds, people with mortgages or other debt obligations could face financial difficulties for months, if not years. The impact on individuals and families could be significant, making it crucial for people to be prepared and consider their financial strategies carefully.
'We're not at that point yet, though; it's always possible the Reserve Bank holds the rate,' Dr Oliver said.
'But the more rate rises, the higher the chance of a recession.'
The cash rate is at 4.1 per cent, the highest since May 2022, when the central bank started increasing it consistently for 12 months. If market predictions hold true and the cash rate is raised just one more time, it could have significant consequences.
A recession in the near future would be the first in Australia triggered by higher interest rates since 1991.
Out of the four major banks, the Commonwealth Bank, Westpac, and NAB are expecting another rate hike, while ANZ is not. Commonwealth Bank and Westpac are forecasting a 0.25 percentage point increase, which would raise the cash rate to 4.35 per cent.
If their predictions turn out to be accurate, this would mark the Reserve Bank of Australia's 13th rate hike in 15 months.
A borrower who owes an average of $600,000 may experience a significant increase in their monthly repayments. The rise would be approximately $99 per month, resulting in an annual increase of $18,744 compared to early 2022.
In just over a year, the repayments would have surged by 67.7 per cent, meaning borrowers would be paying $1,562 more than they did previously.
Despite inflation in June falling to 6 per cent (down from 7 per cent in the March quarter and a 32-year high of 7.8 per cent in 2022), experts are still predicting further interest rate hikes.
The Reserve Bank expects unemployment to rise from the current 3.5 per cent, a 48-year low, to 4.5 per cent by the end of next year. This level of unemployment is considered the non-accelerating inflationary rate of unemployment.
The Reserve Bank of Australia is taking this step to control inflation, which has been outside its target range of two to three per cent. However, economists are worried because the cash rate is already high, but the only way to control inflation might be to raise rates even further.
This is a risky move, especially considering that Australia is already grappling with high household debt due to soaring property prices. Further rate hikes could be the tipping point that leads the country into a recession.
With expenses already high and savings running low, these rate increases could have significant financial repercussions for many.
In response to notions that rate hikes were an easier way to address inflation compared to raising taxes (which governments were not keen on), Dr Oliver agreed, recognising that there's definitely 'an argument the government could intervene'. Since these sorts of decisions are incredibly unpopular, all of the pressure falls on the Reserve Bank to come up with the right solution.
HSBC Australia Chief Economist Paul Bloxham offered his take on the situation, saying there's almost no doubt we'll see a rate hike soon because inflation is still a problem.
However, there is still some hope. Independent economist Saul Eslake argued that while a recession isn't unrealistic, he still believes a recession could still be avoided.
He pointed to various factors—including population growth, countries like the United States that have a higher CPI than ours aren't in a recession, rising consumer confidence, a bouncing property market, and even a downturn in retail spending—as reasons to keep the faith.
'We're not at that point yet. It's always possible the Reserve Bank holds rates,' Mr Eslake said.
'At this stage, knowing what we know, I don't think it's (a recession) likely.'
Members, what do you think about a potential recession? We would love to hear your thoughts and any tips or advice you may have to save more money in the current economic climate. Feel free to share your insights with us in the comments below!
A leading economist, Shane Oliver, who holds the position of AMP Chief Economist, has warned about a potential recession.
He believes that a single decision by the Reserve Bank could trigger this economic downturn. Specifically, if the Reserve Bank decides to raise interest rates once again, it could raise the chance of Australia entering a recession to an alarming 50 per cent.
If this scenario unfolds, people with mortgages or other debt obligations could face financial difficulties for months, if not years. The impact on individuals and families could be significant, making it crucial for people to be prepared and consider their financial strategies carefully.
'We're not at that point yet, though; it's always possible the Reserve Bank holds the rate,' Dr Oliver said.
'But the more rate rises, the higher the chance of a recession.'
Leading economists fear Australia may tip into a recession if the Reserve Bank raises interest rates just one more time. Credit: Shutterstock.
The cash rate is at 4.1 per cent, the highest since May 2022, when the central bank started increasing it consistently for 12 months. If market predictions hold true and the cash rate is raised just one more time, it could have significant consequences.
A recession in the near future would be the first in Australia triggered by higher interest rates since 1991.
Out of the four major banks, the Commonwealth Bank, Westpac, and NAB are expecting another rate hike, while ANZ is not. Commonwealth Bank and Westpac are forecasting a 0.25 percentage point increase, which would raise the cash rate to 4.35 per cent.
If their predictions turn out to be accurate, this would mark the Reserve Bank of Australia's 13th rate hike in 15 months.
A borrower who owes an average of $600,000 may experience a significant increase in their monthly repayments. The rise would be approximately $99 per month, resulting in an annual increase of $18,744 compared to early 2022.
In just over a year, the repayments would have surged by 67.7 per cent, meaning borrowers would be paying $1,562 more than they did previously.
Despite inflation in June falling to 6 per cent (down from 7 per cent in the March quarter and a 32-year high of 7.8 per cent in 2022), experts are still predicting further interest rate hikes.
The Reserve Bank expects unemployment to rise from the current 3.5 per cent, a 48-year low, to 4.5 per cent by the end of next year. This level of unemployment is considered the non-accelerating inflationary rate of unemployment.
The Reserve Bank of Australia is taking this step to control inflation, which has been outside its target range of two to three per cent. However, economists are worried because the cash rate is already high, but the only way to control inflation might be to raise rates even further.
This is a risky move, especially considering that Australia is already grappling with high household debt due to soaring property prices. Further rate hikes could be the tipping point that leads the country into a recession.
With expenses already high and savings running low, these rate increases could have significant financial repercussions for many.
In response to notions that rate hikes were an easier way to address inflation compared to raising taxes (which governments were not keen on), Dr Oliver agreed, recognising that there's definitely 'an argument the government could intervene'. Since these sorts of decisions are incredibly unpopular, all of the pressure falls on the Reserve Bank to come up with the right solution.
HSBC Australia Chief Economist Paul Bloxham offered his take on the situation, saying there's almost no doubt we'll see a rate hike soon because inflation is still a problem.
However, there is still some hope. Independent economist Saul Eslake argued that while a recession isn't unrealistic, he still believes a recession could still be avoided.
He pointed to various factors—including population growth, countries like the United States that have a higher CPI than ours aren't in a recession, rising consumer confidence, a bouncing property market, and even a downturn in retail spending—as reasons to keep the faith.
'We're not at that point yet. It's always possible the Reserve Bank holds rates,' Mr Eslake said.
'At this stage, knowing what we know, I don't think it's (a recession) likely.'
Members, what do you think about a potential recession? We would love to hear your thoughts and any tips or advice you may have to save more money in the current economic climate. Feel free to share your insights with us in the comments below!
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