Finder’s RBA Survey: Experts warn of spike in personal debt as cash rate holds

Low household savings will lead to a jump in personal debt over the next 12 months, according to the majority of panellists in Finder's latest poll.

In this month's Finder RBA Cash Rate Survey™, 42 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

All experts (100%, 42/42) correctly predicted a cash rate hold – keeping it at 4.35% in September.

Graham Cooke, head of consumer research at Finder, said many homeowners are holding out for a cash rate cut.

"Due to the sharp and rapid rise in mortgage repayments, millions of Aussies are under significant financial stress.

"A whopping 40% of homeowners say they are struggling to pay their home loan in September, according to Finder's Consumer Sentiment Tracker.

"The good news is that a rate cut is looking much more likely this side of Christmas, following the US Federal Reserve slashing American interest rates by 50 basis points."

Household personal debt is likely to rise

Households saved just 0.9% of their income over the past year, according to data from The Australian Bureau of Statistics (ABS). This was the lowest rate of annual saving since 2006-07.

The average Australian has $39,407 in cash savings in September, according to Finder's Consumer Sentiment Tracker.

However the nation's big savers are clearly pulling up the national average, with 40% of Aussies having less than $1,000 in their savings account.

The majority of experts (67%, 18/27) who weighed in* say these low household savings rates will lead to an increase in household personal debt over the next 12 months.

Graham Cooke said budgets are being squeezed by rising costs.

"Less in savings means people are more likely to have to rely on credit cards, loans, and buy-now-pay-later products to get by.

"These products can be great if used properly, however they can quickly get out of hand if relied on for everyday expenses."

Cooke urged Aussies to find ways to save.

"You don't need to wait for the RBA to move the cash rate to see if you can find a better deal.

"Finder has a number of variable home loan offers that start with a "5" – if yours does not, it could be time to switch."

Inflation target should be left as is

The majority of panellists (86%, 30/35) agree the current inflation target of 2-3% should be kept in place.

Many experts who believe the inflation target should stay cite the historical success of the target since its inception and that there is enough flexibility already in the target.

Shane Oliver from AMP said the 2-3% inflation target has served Australia well over the last 30 years.

"There have been lots of calls to lower or raise it over the years (usually when inflation is below or above target) but doing so will just reduce the RBA's inflation fighting credibility by changing the goal posts.

"In particular, raising or removing it will likely see higher inflation locked in which will lead to permanently higher interest rates, greater economic volatility and higher unemployment," Oliver said.

However, some experts think the target range should be expanded to a larger range or dismantled altogether. These panellists believe the current range does not allow the RBA enough flexibility to lessen the impacts on certain parts of the economy.

Leanne Pilkington from Laing+Simmons said, "Steadfastly observing a narrow range constrains the RBA's freedom to more deeply consider other variables and their impacts, or potential impacts, on different parts of the economy."

Positive economic sentiment remains low

Finder's Economic Sentiment Tracker gauges experts' confidence in 5 key indicators over the upcoming 6 months: housing affordability, employment, wage growth, cost of living and household debt.

After dropping to a record low of 7% in August, average positive economic sentiment has barely improved – sitting at just 8% in September.

Both housing affordability and household debt continue to be a problem, with 60% of experts expressing a negative outlook to both metrics.

The sentiment towards employment has the highest negative score, with 73% of experts expressing concern.

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

Here's what our experts had to say:

Dr Andrew Wilson, My Housing Market (Hold): "Inflation still well above RBA target and labour market remains strong."

Tomasz Wozniak, University of Melbourne (Hold): "We're over it! ... and we're going down soon! My forecasts are centred at HOLD for this month. We have just passed the times of a high probability of RAISE as it went down from over 70 per cent in July to less than 50 per cent for the upcoming meeting. For the first time, my forecasts indicate a decisive CUT for December, as the predictive interval for that month does not include the current cash rate level. You can access these forecasts at https://forecasting-cash-rate.github.io/."

Aarti Singh, University of Sydney (Hold): "As the inflation has been coming down, although slowly, the RBA is still likely to wait rather than change the rate to balance both risks, risks to inflation and the labour market."

Alex Joiner, IFM Investors (Hold): "The RBA has noted that the data doesn't justify easing policy this year, specifically inflation remains uncomfortably high. We expect that it will take further time for the RBA to be confident in inflation and once it has that it will look to support the economy and labour market."

Malcolm Wood, Ord Minnett (Hold): "Sticky inflation in domestic services."

Nalini Prasad, UNSW Sydney (Hold): "I think the RBA will hold interest rates steady. Inflation has fallen and is expected to reach the top of the target by the end of the year. Barring any large shocks to the economy I think the RBA will want to wait and see if inflation returns to target."

Evgenia Dechter, UNSW (Hold): "Recent growth, unemployment and other indicators suggest a continued economic slowdown. The latest monthly CPI shows a slight decline but inflation remains above the RBA's target. With limited new inflation data since the last meeting, the RBA is likely to hold the cash rate until more information becomes available."

Mark Crosby, Monash University (Hold): "Economy now showing signs of weakness, but RBA likely to wait for further falls in inflation before first cut late this year or first meeting in 2025."

Mala Raghavan, University of Tasmania (Hold): "Inflation (July figure: around 3.5%) is still above the target range of 2 to 3 %, while economic growth is sluggish (1.1% growth). Despite the slowdown in the Australian GDP growth rate, the Australian economy has so far avoided the classical recession. Though the per capita income growth is negative, the unemployment rate is within the acceptable level, and the wage growth rate is keeping pace with inflation. These indicators suggest that the RBA is likely to maintain the cash rate."

Peter Munckton, Bank of Queensland (Hold): "Both inflation and the unemployment rate are around 4%. GDP growth is flattish, and the global economy is sub-par. That combination should see the RBA keep the cash rate unchanged at 4.35% at the September meeting."

Brodie Haupt, WLTH (Hold): "RBA continues to report higher underlying inflation so it seems unlikely there will be a cut at this point in time."

Anthony Waldron, Mortgage Choice (Hold): "The latest data makes the case for the Reserve Bank to keep the cash rate on hold. ABS data showed that inflation is trending down, and the seasonally adjusted unemployment rate rose slightly in July. Data also points to interest rates affecting the economy as intended, with the ABS Australian National Accounts showing that outside of the pandemic, the economy recorded the slowest annual financial year economic growth since FY92."

Matthew Greenwood-Nimmo, University of Melbourne (Hold): "I think the RBA will hold the cash rate constant to maintain downward pressure on inflation. There are downside risks that the RBA will be monitoring carefully but I don't think those risks merit a rate cut at this stage."

Geoffrey Kingston, Macquarie University Business School (Hold): "Another month of mixed signals. On the one hand, inflation remained too high, propped up by high public-sector spending. On the other hand, the private sector continued to weaken. Bank is almost certain to remain in a holding pattern."

Stella Huangfu, University of Sydney (Hold): "Inflation is currently at 3.8%, which remains well above the RBA's target range. Consequently, interest rates need to remain high to help curb spending. Unless Australia experiences a significant recession before the end of this year, the RBA is likely to keep interest rates on hold at least until February next year."

Garry Barrett, University of Sydney (Hold): "Core inflation remains persistently outside target range."

Nicholas Frappell, ABC Refinery (Hold): "Inflation remains above target while so far other measures of strength remain relatively steady."

James Morley, The University of Sydney (Hold): "The RBA has made it clear that they are unlikely to cut rates until 2025 unless there is a material change to their forecasts of inflation and economic conditions. I anticipate that more favourable progress on headline inflation for Q3 beyond the temporary effects of energy rebates and heightened worries about global economic conditions, especially related to China, but also with decreasing interest rates for many other countries, will motivate the RBA to start cutting in December of this year. However, they are not likely to cut more than three or four times unless conditions deteriorate much more rapidly than expected, such as a sudden spike in the unemployment rate. The limited number of cuts is because the RBA will be waiting to see the effects of these initial cuts to determine where the neutral level of interest rates is. Given likely ongoing weak productivity growth, I suspect neutral is a bit lower than the RBA might be currently expecting, so there could be a few further cuts later in 2025."

Devika Shivadekar, RSM Australia (Hold): "Current economic conditions justify a watchful hold therefore we see cautious non-action at the Sept meeting. Following RBA officials' comments, it is clear the RBA is in no rush to ease policy rates. Unless data in the upcoming months forces RBA's hand to act sooner, a pivot is most likely expected in 1Q25."

Craig Emerson, Emerson Economics (Hold): "The economy is barely growing and would not have grown in the last two quarters if not for government spending."

Leanne Pilkington, Laing+Simmons (Hold): "Recession is now a real possibility and it has become clear that the rate rise cycle has had a significant impact on dampening household expenditure. Inflation may not yet be within the target range but it is heading in that direction, and other economic variables point to the next rate movement being down."

Shane Oliver, AMP (Hold): "Short of substantially higher unemployment, lower underlying inflation or a financial shock the RBA is likely to remain on hold in the next few months as it still sees too much excess demand and inflation. But easing demand, employment and inflation are likely to drive rate cuts from February."

Nicholas Gruen, Lateral Economics (Hold): "I'm guessing – like everyone else :) It's very hard to know."

Tim Nelson, Griffith University (Hold): "RBA intends to hold rates until inflation is well under control."

Tim Reardon, Housing Industry Association (Hold): "Inflation is still above target. There are still a number of factors that could keep inflation elevated, e.g. low unemployment, strong population growth, rent and electricity prices could continue putting upward pressure on inflation, government spending and infrastructure projects could continue supporting wage growth. Notwithstanding the potential for a major national/international shock in the opposite direction, the RBA is not yet confident about the trajectory of inflation."

Mathew Tiller, LJ Hooker Group (Hold): "Despite general softness in recent economic data, inflation remains elevated. The RBA will keep rates on hold until they are confident they have beaten inflation."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Hold): "I've had the view since November 2023 that the RBA would leave rates unchanged during 2024, and not start cutting them till February 2025 at the earliest, irrespective of what other central banks did. That's because I concluded, as the RBA has since (beginning with the minutes of the March Board meeting) confirmed, that they had consciously opted to tolerate inflation being above their target band for longer than their peers (the Fed, BoE, BoC and RBNZ) were willing to tolerate inflation being above their respective (and lower) targets, in order to preserve as much as they could of the gains made in reducing unemployment and under-employment during 2021 and 2022. And so having not put interest rates up as much as their peers, inflation hasn't come down as quickly but unemployment hasn't risen as much as in the US, UK, Canada and NZ - so rates won't come down by as soon or as much as in those countries. Especially when you also take into account the fact that Australians, unlike Americans, Brits, Canadians and New Zealanders, are getting tax cuts worth (in terms of their impact on aggregate household cash flows) two 25 basis point rate cuts in the current half year."

Adj Prof Noel Whittaker, QUT (Hold): "Inflation in Australia is still above target (despite Australia having the highest inflation target in the world) and there is no need to stimulate jobs, as unemployment is not high. We have near full employment, evidenced by strong wages growth."

A/Prof Mark Melatos, School of Economics, University of Sydney (Hold): "Inflation remains above the RBA's target band despite moderating in recent months. House prices appear to have significantly decoupled from incomes and shrugged off the rate increases to date. As long as low unemployment (effectively full employment) persists, the cash rate is unlikely to be reduced and further increases remain a possibility."

Jeffrey Sheen, Macquarie Business School (Hold): "Almost all other major central banks have begun easing their monetary policy. We cannot afford the resulting strong exchange rate at this stage.The weakness in Australia's exports to China means our luck has run out. Business investment and consumption are already feeble. By November, I expect the portents of a severe recession in 2025 will compel the RBA to walk back its anti-inflation commentary and begin cutting the cash rate. If they don't, they risk damaging the economy as well as their hard-earned reputation as effective macroeconomic managers."

Dale Gillham, Wealth Within (Hold): "CPI is still a little high and is not showing signs of moving into where the RBA would like it."

Kyle Rodda, Capital.com (Hold): "The RBA is sticking to its hold and hope strategy. Given very little guidance about a potential hike and the push back from the central bank about future cuts, there's little reason to think there'll be a surprise rate rise."

David Robertson, Bendigo Bank (Hold): "Monetary policy is firmly on hold although the RBA should be in a position to start cutting official rates in early to mid 2025. Other central banks are now steadily reducing rates, but our cycle appears to be around 6-9 months later."

Stephen Halmarick, Commonwealth Bank (Hold): "Global trends, inflation heading towards target and rising unemployment rate."

Stephen Miller, GSFM (Hold): "Inflation is still too "sticky" to cut the policy rate now but should abate sufficiently in the wake of tepid activity growth to allow easing by February."

Matt Turner, GSC Finance Solutions (Hold): "My view is that the RBA will need to see inflation continue to fall into the target band, they have indicated strongly that there have still been conversations in regard to increasing rates rather than decreasing. Soft GDP and employment data helps mount a case for a cut, however until inflation returns to the target band, I don't see there being any discussions on a reduction to the cash rate."

Peter Boehm, Pathfinder Consulting (Hold): "As I have said for some time now, The Federal Government's fiscal policy has helped fuel inflation such that I cannot see rates reducing anytime soon. In fact, I suspect there is a real possibility rates will rise this year if the inflation rate remains where it is today. Whilst the federal government and RBA should act independently they need to act cooperatively. This is not happening, largely because of the government's obsession with spending, as a means to help prop up GDP. Their approach fails to recognise per capita GDP is actually falling, meaning every Australian is worse off. The government's response (like providing one-off energy rebates) is like trying to hold the ocean back with a bucket - it just won't work."

Jakob Madsen, UWA (Hold): "Inflation is still a concern."

Michael Yardney, Metropole Property Strategists Pty Ltd (Hold): "The Reserve Bank of Australia maintains that its number one enemy is inflation and even though inflation is slowly falling, it's not falling as quickly as the RBA had hoped. With our economy slowing and many households on the edge of mortgage stress, more rate rises in 2024 are off the cards. If the economy evolves broadly as anticipated, the board does not expect that it will be in a position to cut rates in the near term, so early next year is when rates are likely to start falling."

Cameron Murray, Fresh Economic Thinking (Hold): "Since COVID the Australian economy seems to be about 12-18 months the major economic trends in other countries."

Stephen Koukoulas, Market Economics (Hold): "Weak economy, low inflation."

Richard Holden, UNSW (Hold): "Core inflation is stuck at 4 percent or above."