Are interest rates rising in May?

Broker director, aggregator CEO discuss what RBA might do

Are interest rates rising in May?

News

By Jayden Fennell

The Reserve Bank of Australia may have no choice but to lift official interest rates for the first time in more than a decade after a dramatic rise in inflation, say broker industry figures.

Bianca Patterson (pictured), the director of Perth brokerage Calculated Lending, said she believed the Reserve Bank would increase the official cash rate when it meets on Tuesday.

“It is a big call, however it is due to happen,” Patterson said.

“If it doesn’t happen this month, it is likely to happen in the following month.”

Paterson said with inflation at more than 5% and at least one interest rate rise expected before the end of the year, she said now was a good time for the RBA to bring in the first increase.

“Of course nobody wants the rates to rise and with a federal election looming it might be a factor taken into consideration but ultimately they are only deferring what is the inevitable,” she said. 

Finsure CEO Simon Bednar said the RBA might have preferred to put off increasing its cash rate during the federal election campaign but an inflation rate of 5.1%, the highest it had been in 21 years meant the central bank might have to act next week.

“I believe the RBA may have no choice but to lift rates,” Bednar said.

“The RBA has an obligation to ensure its monetary policies are appropriate for the time and unless it increases the rates next week it runs the risk of reacting too late. The consequences for moving slow might cause greater problems down the track and end up with higher rates longer term.”

Bednar said the RBA might have been looking to await the release of wages data on 18 May and avoid a rate increase during an election campaign.

“The RBA would not want to be seen to be influencing voter sentiment but the higher-than-expected inflation figures have brought their rates decision forward,” he said.

“We may just see a small increase next week from 0.10% to 0.25% and then another increase in June.”

Bednar said he thinks the RBA would follow it with another one to two rate increase for the year following the release of additional economic data.

“Rates could reach at least 1.0% by the end of the year,” he said. “When the RBA lowered the cash rate to 0.10% in November 2020, it was an emergency action to see us through the pandemic.”

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