AMP chief economist predicts that the Reserve Bank of Australia (RBA) will “leave interest rates on hold for the rest of this year” ahead of “four rate cuts through 2024 as the economy and inflation slow further”.
Oliver believes “the RBA has done more than enough to bring inflation back to target” and warns that “continuing to raise interest rates will only add to the already very high risk (at around 50%) of recession”.
Oliver points to several indicators pointing to slower economic growth and easing inflationary pressures.
First, there is already a significant amount of tightening built-in to the monetary system as the large number of fixed-rate mortgages originated over the pandemic revert to higher variable rates.
“Once the rate hikes fully flow through [household debt payments] will likely go to a record high”, Oliver says. “This is a very big hit to household spending power”:
Second, household consumption indicators show that the RBA’s aggressive rate hikes are starting to bite.
“Real retail sales have fallen for three quarters in a row and are very weak on a per capita basis, ie adjusting for population growth”:
“The ABS’ Household Spending Indicator suggests annual growth in nominal consumer spending has gone negative this quarter which suggests weakness in both goods and services”:
Shane Oliver also points to “a sharp slump in building approvals” as well as the slowdown in business investment plans, falling real GDP growth, the softening labour market, and weaker corporate profits.
The upshot is that while there are some short-term upside risks to inflation, the above factors should be enough to keep rates on hold for the time being before cuts arrive in 2024.
