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“A rate decrease would be a welcome Christmas present,” said one expert.
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Experts call for rate cut after RBA decision
04 October 2023
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Expert bodies have welcomed the RBA’s decision to leave rates unchanged at 4.1 per cent but warn that businesses and consumers need relief from the cost of living amid bank assurances it would do “what is necessary” to control inflation.
BDO economics partner Anders Magnusson said a rate decrease would be a “welcome Christmas present from the RBA”.
“Strong population growth fuelled by migration has strengthened the Australian economy, yet modest retail spending in August and the lowest household spending ratio since 2008 indicate the squeeze on the wallets of average Australians,” he said.
Finance Brokers Association of Australia managing director Peter White welcomed the decision to keep rates at 4.1 per cent but said the RBA had underestimated the financial, personal, social and mental health impacts of 12 rate rises in 13 months on borrowers.
“A pause is better than a rise but what borrowers really need is relief, and if it doesn’t come soon then more people will be seeking financial crisis support,” he said.
CreditorWatch similarly welcomed the decision to keep rates unchanged and said the RBA’s tightening policy was working.
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“Continuing weak retail trade and consumer confidence data is giving the board the clear sign that their efforts to reduce demand in the economy have worked very well. While some items in the CPI ‘basket’ continue to record price rises, these rises are by and large not related to high consumer demand, and therefore not enough to convince the RBA to move again to cool demand further,” it said.
CPA Australia senior manager Gavan Ord said the decision would be met with “relief” by households and businesses, and that it was against the possibility of further rate rises.
“Our consistent message in recent months has been that prudent businesses should continue to factor in further rate increases into their business projections,” it said.
“Notwithstanding this month’s rate reprieve, small businesses continue to operate in an environment of higher interest rates, rising wages and increased costs. Many will need to pass these costs onto consumers.”
ABS data showed inflation crept up to 5.2 per cent in the 12 months to August, but the RBA expected it to continue to decline and be back within its target range in late 2025 despite mixed signals from the economy.
“Inflation in Australia has passed its peak but is still too high and will remain so for some time yet,” the RBA said.
“Timely indicators on inflation suggest that goods price inflation has eased further, but the prices of many services are continuing to rise briskly and fuel prices have risen noticeably of late. Rent inflation also remains elevated.”
“High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.”
The RBA said it extended the rate pause to give it further time to gauge how an uncertain economy was responding to its aggressive tightening campaign which tentatively ended in July.
“The outlook for household consumption remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income,” the statement said.
While growth in Australia was “a little stronger than expected” over the first half of the year, the economy was experiencing a sustained period of “below-trend growth”, the RBA said.
The RBA warned that Australia could experience the persistently “severe” services price inflation seen overseas and there was a high level of economic uncertainty around China, our biggest trading partner, due to ongoing stress in its property market.
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