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The RBA cash rate has been at 4.35% since November 2023, after rising 425 basis points over two and a bit years. For Aussies struggling with home loan repayments, a cut is long overdue, while those looking to save are probably quite enjoying strong returns on term deposits and savings accounts.

Regardless of where you stand, you're probably pretty interested by how rates will change in the coming months. While it's always a guessing game, here's what the experts are currently saying, and what could change the current outlook.

The current RBA position

Speaking after August's monetary policy decision, RBA boss Michele Bullock poured ice cold water on the prospect of rate cuts anytime soon.

"Given what the Board knows at the moment and what the forecasts are, [rate cuts in the next six months] doesn't align with their thinking…at the moment," she told journalists at a post-meeting press conference.

If you're a mortgage holder barely holding on, this might make you want to shout. From the sounds of it, lots of people already have - she said she had received some "quite distressing" letters from borrowers . However, she reaffirmed that the RBA needs to "stay the course" and do what's necessary to bring inflation to target levels.

"The point I would come back to…is that it's not just interest rates hurting these people, it's the cost of living," she said.

"I do understand [people are struggling] but getting inflation down is the key to this ultimately being resolved."

After all, only about one-third of Aussie households are those who own their home with a mortgage. On the other hand, inflation affects everyone.

Inflation is seemingly the problem that just won't go away. The 'blunt tool' of interest rate hikes is meant to retract spending throughout the economy, curbing the excess demand that is driving inflation, but progress has been slow going. The unemployment rate and the CPI inflation indicator are currently in line with the most recent RBA Statement on Monetary Policy, which forecasts inflation to 2.6% by December 2026. This model assumes the cash rate will be cut to 4% by June '2025, and 3.6% by the end of next year.

RBA Cash Rate Forecasts

As of 12 August 2024 these are the current positions of the top economists from Australia's four biggest banks.

Institution

Forecast

Commentary

CommBank

No more rate hikes, first cut in November

"We continue to expect one rate cut in November as we forecast the labour market to loosen quicker than the RBA is expecting," - Belinda Allen, Senior CBA economist

ANZ

No more rate hikes, first cut in February '25, cash rate to drop to 3.60% by start of 2026

"A rate cut [in 2024] would most likely require a much more rapid deterioration across the activity side than we expect," - Adam Boyton, Head of Australian Economics at ANZ

Westpac

No more rate hikes, but no cuts in 2024

"Our [previous] expectation of a November rate cut is unlikely to be achieved, given [RBA rhetoric]," - Luci Ellis, Westpac Chief Economist

NAB

No more rate hikes, no cuts until May 2025.

"[RBA] thinking is aligned with our own…the conditions for a cut are unlikely to be in place in the near term," - Tapas Strickland, NAB Head of Market Economics

Market predictions

While Ms Bullock's rhetoric remains firmly hawkish, the markets still aren't convinced. Plenty of Aussies clearly think Ms Bullock's rhetoric is just that - all talk and no action. It would after all make sense for her to want people to expect higher rates for longer, and cut spending accordingly.

This was how the RBA ASX rate tracker assigned the probabilities of monetary policy outcomes over the week from the August decision.

Probability rates will be kept unchanged at the September meeting

Probability rates will be cut to 4.10% at the September meeting

August 6th (day of monetary policy decision)

50%

50%

August 7th

50%

50%

August 8th

50%

50%

August 9th

60%

40%

August 12th

70%

30%

August 13th

60% 40%

August 14th

50% 50%

Why the RBA might cut rates

Ms Bullock has been remarkably consistent about the "uncertain" outlook, and says there are a number of scenarios that could change the current RBA position.

"We need to be alert to [these things] and if they come to pass then yes, interest rate cuts would be on the agenda," she said.

These are just a few possible scenarios that might see the RBA upend the current plan and start slashing rates.

US driven recession

In the days before the RBA decision, global markets took a nosedive. A surge in US unemployment led to fears the Federal Reserve (the US equivalent of the RBA) had kept rates too high for too long, and that the world's largest economy was headed for recession.

This ended up being overblown - most of these declines reversed in the days that followed. At the same time, it illustrates how entangled other nations are with the US economy. A genuine recession in the US could hit Aussie exporters, hurt investor confidence and commodity prices, and potentially spark widespread downturns across the globe. If the US economy runs into trouble, the Australian economy would likely follow. This could see the RBA take decisive action, slashing rates to stimulate economic activity.

Chinese driven recession

Issues in the world's second largest economy could also spell trouble for Australia. In 2023, China spent nearly $219 billion on Australian exports. That's more than double that of Japan, our second largest trade partner.

Australia needs China to keep buying its stuff, and there are some worrying signs the Chinese economy could be heading for trouble.

Much of the growth in China over the past couple of decades was driven by property. As the population rapidly urbanised, developers like Evergrande pumped out skyscrapers, becoming among the biggest companies in China. Building high rises needs lots of steel, which was great for the world's largest iron ore exporter, Australia.

However, supply in China outstripped demand - just head to YouTube to see 'ghost cities' of empty skyscrapers. In 2020, China also introduced regulations on how much debt developers like Evergrande could take on. This has hurt both property developers (Evergrande is in liquidation) and Chinese banks.

The Chinese Government remains committed to a 5% growth target for 2024. However, as with the US, struggles for the Chinese economy would be bad news everywhere. Australia might feel the pinch particularly acutely if its biggest customer started spending far less. Again, this might prompt the RBA to cut rates.

Another war

It sounds a bit inane to talk about the economic impact of a major conflict compared to the human cost on the ground. However, it's undeniable that a major war could have significant ramifications around the world. Historically, wars hurt stock markets as spooked investors gravitate towards less risky assets, which could mean turmoil for equity markets. A genuine sustained market crash could well necessitate an emergency rate cut or two.

Further, war generally turns the wheels of industry. In a bid to boost the economy, the RBA could cut rates to make money cheaper, allowing businesses to borrow to keep the home fires burning. It would also allow the government cheaper access to debt, which would facilitate cheaper spending on any war effort.

Scenarios where rates are hiked again

At the August meeting, there were two possibilities considered- keeping rates at 4.35% and hiking to 4.60%. While the highest in more than a decade, the RBA did not hike to levels seen elsewhere. The Federal Reserve, the Reserve Bank of New Zealand and the Bank of England all are 5% or higher.

Some commentators have suggested the RBA should have done similar, and Michele Bullock says further hikes are not off the table.

"[The board] are vigilant to the upside risks and if it does appear that inflation is not tracking the way we are forecasting then [we] will, if needed, increase interest rates," she said.

The below scenarios could force the RBA's hand.

Spending won't slow

In the pandemic's immediate aftermath, price increases were attributable to supply chains ravaged by lockdowns and restrictions. Ms Bullock says these issues are now mostly resolved, with domestic demand driving inflation.

"Supply shocks have largely now worked their way through the system, and what we're dealing with is continued strong demand," she explained.

Plenty of Australians are seemingly unperturbed by high rates. It's a reminder of why monetary policy is considered a blunt tool, since those with means are often unaffected. According to the Infochoice State of Aussies' Savings Survey, only 43% of Aussies significantly cut spending over the year to June '24.

Australian's with large incomes, who may have already paid off mortgages, may continue to spend at the same rate. Approximately one-in-six Aussies own their home mortgage free, and ostensibly these people wouldn't be feeling the negative effects of rate rises. Quite they opposite - they might be enjoying higher rates on savings products and feeling confident to spend.

If this keeps household spending strong the RBA may need to squeeze those struggling even harder, with another hike to curb aggregate demand.

'Entrenched' inflation expectations

Michele Bullock's predecessor Dr Philip Lowe was particularly concerned about 'entrenched' inflation expectations among the Australian public. This means everyone expects prices to keep rising, so spend more before things get more expensive. In turn, this keeps demand strong, fueling inflation, and so on, a spiral known as hyperinflation.

In Australia, there was alarm in December 2022 when prices rose 7.8% through the year. In Argentina, where hyperinflation has run rampant for years, it's normal for prices to increase more than 10% a month. If it becomes clear expectations of price increases is driving inflation, this might be enough for the RBA to pull the trigger on another hike.

The RBA also risks, in-house, entrenching inflation expectations. In its latest Statement of Monetary Policy, it doesn't forecast inflation to return to close to the midpoint of its 2-3% target until the end of 2026. This means that 2027 is most likely for 2.5%.

This is six months later than the last set of forecasts, and up to two years later than previous forecasts.

Too high wages

Dr Lowe (who really wasn't great at PR) also spoke out against excessive wage growth, saying regular 4-5% increases risks a price/wage spiral. Wages go up, increasing demand, so prices go up, so workers demand higher wages, etc.

Wage price growth has moderated, but remains high. In the current SOMP, wages are expected to continue to moderate as the labour market loosens. Unemployment is expected to rise to 4.4% by December, and correspondingly annual wage growth is expected to decline to 3.6%.

Industries with strong collective bargaining agreements also mean that wage rises are distributed unevenly across the labour force. The latest wage price index results show this - case in point is childcare workers' negotiated 15% pay rise.

However, the SOMP acknowledged there may be more excess demand in the labour market than currently assessed. This would put upward pressure on prices, which might require action from the RBA.