Finder’s RBA survey: Cash rate decision uncertain as 50% of renters struggle to keep up

The nation's experts are split on whether the RBA will lift the cash rate again in June.

In this month's Finder RBA Cash Rate Survey™, 39 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

A slim majority of panellists (56%, 22/39) believe the RBA will hold the cash rate at 3.85%, leaving more than 2 in 5 (44%, 17/39) forecasting an increase.

More than a third of experts (15/39, 38%) believe the RBA will increase the cash rate by 25 bps – bringing it to 4.10% in June.

Beyond June, 2 in 3 (26/39, 67%) believe the RBA will hold the cash rate in July.

Graham Cooke, head of consumer research at Finder, said after last month's shock increase, there's growing uncertainty on this month's outcome.

"Our panel continues to be heavily divided – demonstrating the uncertainty in the market around the RBA's strategy.

"Despite the RBA board being heavily criticised due to its unprecedented series of rate hikes, the recent uptick in inflation may be enough to trigger another rate increase.

"Our experts forecast a maximum of 2 more rate rises this year. After that, the flood waters should start to subside," Cooke said.

Nalini Prasad from UNSW Sydney said the cash rate is likely to increase.

"Although inflation has moderated, it still remains at levels well above that seen prior to the COVID-19 pandemic. Of particular concern is services inflation which continues to be strong.

"Since labour is the main component of services, this points to higher labour costs. This would be concerning to the RBA," Prasad said.

On the other hand, Craig Emerson from Emerson Economics said it's time for a pause to let the effect of the past rate rises wash through the system.

"The economy is slowing already with much more contraction yet to come through from previous cash rate increases," Emerson said.

Stamp duty abolished for properties up to $800,000

The NSW government announced in January it will remove stamp duty for properties up to the value of $800,000 for first-home buyers and remove the land tax option.

Almost two-thirds of experts who weighed in* (17/29, 59%) believe this is a good change in policy.

However, the panel was highly pessimistic about the effectiveness of the federal budget's increase of $700 million per year in rent assistance.

All experts who responded (31/31, 100%) do not think it will do enough to solve the current rental crisis.

In May 2023, a record-high 50% of Australian tenants said they struggled to pay their rent – up from 36% in May 2022 – according to Finder's Consumer Sentiment Tracker.

This is the highest number on record since Finder began tracking this statistic monthly in May 2019.

Cooke said many renters are struggling beyond their means.

"Finder's research shows that younger renters are far more likely to be affected by the cost of living crisis compared to mortgage holders, and most landlords pass on the full mortgage cost – and more – to their tenants.

"While the land tax move is positive in adding fluidity to the bottom end of the housing market, the government needs to focus attention on making things better for renters," Cooke said.

Stella Huangfu from University of Sydney said the current rental crisis is due to supply not keeping up with increased demand.

"The fundamental way to solve the rental crisis is to increase supply in the rental market by providing financial incentives to investors.

"The proposed $700 million per year in rent assistance will only help on the demand side," Huangfu said.

Saul Eslake from Corinna Economic Advisory Pty Ltd agreed.

"Although the increase will be of some benefit to those eligible for it, the 'solution' to the crisis requires a significant increase in housing supply," Eslake said.

Panellists don't expect inflation to drop to 2% until the June 2024 quarter or later

The yearly CPI inflation figure fell 7% year on year in the March quarter – the first drop since September 2021.

More than three-quarters of the panel (85%, 28/33) expect inflation to come down to the RBA's 2% target in the June quarter of 2024 or later.

Cooke said inflation bumped up a tad in April, but is still well below its December peak.

"The long-term forecast from our panel is for inflation to continue to decline, which should mean the cash rate does too.

"This will be welcome news to those still in a variable mortgage, but may be bad news for savers," Cooke said.

Shane Oliver from AMP said we may just start to settle down near the 2–3% target next year.

"Inflation has peaked and inflationary pressures are easing but it will take time to bring to services sector inflation," Oliver said.

David Robertson from Bendigo Bank said he wouldn't expect inflation to get to the target range until 2025.

"Headline CPI and core inflation should steadily fall through 2024 but neither are likely to be back in the RBA target band of 2–3% until 2025. Core services inflation is likely to be stubbornly elevated for some time," Robertson said.

*Experts are not required to answer every question in the survey

Here's what our experts had to say:

Tomasz Wozniak, University of Melbourne (Increase): "Based on the new data from May, all my forecast systems are aligned and indicate a 15 basis point rise in the cash rate, with further increases expected throughout the year. The forecast intervals have also been narrowed to 3.9–4.1%, leaving little doubt about the projected raises. All this seems to be in line with the slowly falling inflation rate, which reached 6.8% in April. My forecasting system for this month includes 32 bond yield models for weekly and monthly data and 64 complex dynamic time-varying risk models encompassing the leverage effect and risk premium. The forecasts from individual models are further pooled based on their cash rate forecasting capacity."

Garry Barrett, University of Sydney (Increase): "CPI increase persistently high."

Mala Raghavan, University of Tasmania (Increase): "RBA is bound to increase the cash rate as all key economic indicators show signs towards tightening monetary policy. The inflation figure increased to 6.8% due to rising fuel prices, new dwellings and other essential items such as food and beverages, thus putting upward pressure on households' living cost index. Employment figures are pretty robust, with the unemployment rate hovering around 3.6% while the labour market participation rate remains at 66.7%"

Matthew Greenwood, University of Melbourne (Increase): "Inflation is stubbornly high and it is not forecast to return to the target range for a long time yet. The RBA may feel obliged to raise the cash rate further to ensure that inflation expectations remain anchored."

Nalini Prasad, UNSW Sydney (Increase): "Although inflation has moderated, it still remains at levels well above that seen prior to the COVID-19 pandemic. Of particular concern is services inflation which continues to be strong. Since labour is the main component of services, this points to higher labour costs. This would be concerning to the RBA."

Stella Huangfu, University of Sydney (Increase): "It is clear from today's CPI data that inflation is still far away from RBA's 2–3% target. There is no doubt that the RBA will increase the cash rate for the next two meetings, each time 25 bps."

Mathew Tiller, LJ Hooker Group (Increase): "The latest monthly CPI data indicates that inflation remains sticky, leaving the RBA with little choice but to raise the cash rate. Rapidly rising housing rents is one key driver of persistently high inflation levels and with a limited supply of new properties in the construction pipeline and rising population growth, it is anticipated to continue impacting the CPI for some time to come."

Jeffrey Sheen, Macquarie University (Increase): "Having raised the cash rate last month, and with the high inflation rate only slowly decreasing, the RBA is likely to increase the cash rate in June."

James Morley, The University of Sydney (Increase): "The fact that headline monthly CPI returned back up to a year-ended 6.8% for April provides clear cover for the RBA to raise the policy rate to demonstrate a further response to inflationary pressures. The monthly measure is somewhat volatile and is not completely comparable across each month of a quarter. So it is possible that the May reading will drop back down. The drop to 6.5% when excluding volatile items also provides some hope that future inflation releases will suggest a further easing of inflation and allow the RBA to hold in future meetings. Then I think the RBA may have to start decreasing rates by the end of the year if domestic demand deteriorates and the unemployment rate starts going up more rapidly. This is far from certain and a softer landing may still be possible. But it is a possibility."

Richard Holden, UNSW (Increase): "We are way behind in the fight against inflation. And our spread with the US is lowering the AUD and further fueling inflation."

Jonathan Chancellor, The Daily Telegraph (Increase): "The RBA is in the unenvious position of steering the economy away from its inflationary curse, and more needs to be done. Consecutive rate rises are needed, rather than its regrettable stop start course it had earlier this year."

Dale Gillham, Wealth Within (Increase): "The RBA tends to overshoot as getting the right balance is not that easy. Whilst the economy has slowed somewhat, it may not be enough and so I think the RBA will increase the rates by another 25 basis points."

Peter Boehm, Pathfinder Consulting (Increase): "RBA has clearly stated the fight against inflation continues as it remains stubbornly high."

Brodie Haupt, WLTH (Increase): "With services annual inflation recording the largest annual rise since 2001, it's hard to see the RBA not taking measures to curb it."

Associate Professor Mark Melatos, School of Economics, University of Sydney (Increase): "Inflation, especially the trimmed mean of the CPI, remains significantly above the RBA's target band. The RBA is still in catch-up mode with respect to matching their cash rate settings to the inflation reality. The RBA currently seems particularly concerned about services inflation and potential wage increases unaccompanied by productivity gains."

Cameron Murray, University of Sydney (Increase): "It's a guess. Hard to disentangle conflicting views and data at the moment. I thought the rate had peaked with the pause, but that proved to be wrong."

Jakob Madsen, University of Western Australia (Increase): "Inflation is still well above target."

Shane Oliver, AMP (Hold): "We think the RBA has already done enough with a high risk of recession which will knock inflation a lot lower. But the RBA's strong hawkish bias combined with still high inflation and upside risks to wages growth flowing from the Minimum Wage Case, high public sector pay and the tight labour market the likelihood is that it will raise rates further. We are now allowing for another hike in July but the risk is high that it could come this month."

Harry Murphy Cruise, Moody's Analytics (Hold): "Consumer confidence is in the doldrums and retail sales volumes are going backwards. That backdrop, combined with the falling core inflation figures, demonstrates that the Reserve Bank of Australia has done enough to temper demand. It is now a waiting game to see that flow through to inflation. We expect the RBA to keep rates steady in May and beyond. Rate cuts are on the cards from early next year. If the RBA presses on with rate hikes regardless, households could suffer more than necessary. For many, it would feel like an economic recession, even if population growth keeps aggregate GDP expanding."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Hold): "Although the monthly CPI for April was higher than expected, after May's 25 basis point increase in the cash rate, monetary policy now seems sufficiently tight to provide reasonable grounds for thinking that it will decline to the target range."

David Robertson, Bendigo Bank (Hold): "The RBA board is likely to keep rates on hold at 3.85% in the June meeting with another pause to assess conditions, although it will maintain a tightening bias for some time. The latest monthly inflation data risks another hike to 4.1%, but this is more likely to occur around August (after the next quarterly CPI data)."

Craig Emerson, Emerson Economics (Hold): "The economy is slowing already with much more contraction yet to come through from previous cash rate increases. It's time to pause."

Tim Reardon, HIA (Hold): "Inflation remains well above RBA's target. A rate cut in mid-2024 is probable, but risk of embedded inflation now exists."

Cameron Kusher, REA Group (Hold): "I think from here rate changes will largely be determined by quarterly CPI. Over the month the labour market eased, retail trade slowed too, not much to suggest a need to tighten rates again this month."

Rich Harvey, Propertybuyer (Hold): "It is likely that inflation is not moving down fast enough with projected wage rises and other costs proving inflationary."

Adj Professor Noel Whittaker, QUT Business School (Hold): "The RBA is in a dilemma. As Michael Chaney of Wesfarmers just pointed out, inflation is ingrained for at least two years and nothing much the RBA can do will make much difference to it. Therefore, I think the bank will hold – I sure hope they do. There has been too much pain inflicted on mortgage holders already."

Tim Nelson, Griffith University (Hold): "RBA will hold to gather more information before acting further."

Jason Azzopardi, Resimac (Hold): "Further increases required to curb inflation which is clearly their objective above all other considerations."

Stephen Koukoulas, Market Economics (Hold): "Lower inflation and weaker economic growth."

Michael Yardney, Metropole Properties (Hold): "The RBA is receiving mixed messages about how quickly inflation is coming under control and is likely to take a breather this month."

Nicholas Frappell, ABC Refinery (Hold): "Inflation remains significant and the labour market tight so while the RBA may 'pause' there is a tightening bias."

Geoffrey Kingston, Macquarie Business School (Hold): "Credit is probably tight enough now to bring down inflation, although there is some chance of one or two further rises. Rates on track to come down next year."

Alan Oster, Nab (Hold): "RBA needs more flexibility re the inflation outlook. Getting inflation back to 3% by mid-2025 is too long. They need to lower the risk that that target may slip."

Andrew Wilson, My Housing Market (Hold): "Line ball decision – early signs of an easing in economic activity may encourage another pause – but inflation remains relatively untamed."

Anthony Waldron, Mortgage Choice (Hold): "I believe the Reserve Bank will hold the cash rate in June. The ABS's monthly CPI indicator rose 6.8% in the year to April 2023, but is still below the peak we saw in December 2022, which should hopefully give the RBA and borrowers some breathing room."

Evgenia Dechter, UNSW (Hold): "The RBA has indicated in the past that it will pause and evaluate its further steps."

Leanne Pilkington, Laing+Simmons (Hold): "After last month's rise we believe leaving rates unchanged at the June meeting is the prudent course. Removing the fuel excise anomaly, the most recent CPI data for April shows a continuation of the easing in inflation and as rental inflation remains a major concern, a further increase will hurt some sectors of the market more than others."

Nicholas Gruen, Lateral Economics (Hold)