The Reserve Bank of Australia (RBA) kicked off its latest meeting on monetary policy today, with markets once again fixated on the fate of near-term interest rates.
But the outlook is far from clear. The current landscape is cluttered with competing pressures: from persistent inflation to higher costs-of-living to looming tax changes that will impact capital gains tax (CGT) and negative gearing, to a stubborn housing shortage and continued global uncertainty. Yet the case for caution is equally compelling. Currently, Australia is also faced with a slowing economy, rising wages and early signs of a softening labour market.
Even the major banks are conflicted on their outlooks. Earlier this month, National Australia Bank (NAB) reversed course, predicting the RBA's next move would likely be to hold rates, though it stopped short of indicating when. ANZ and Commonwealth Bank (CBA) are expecting the RBA to stay on the sidelines with a hold for now. Westpac, meanwhile, sees a hold as the most likely near-term outcome, but has not ruled out another rate hike later this year.
In a two-part series, Australian Broker caught up with market participants across the country to get their predictions on the central bank's next move.
Founder and director at Adelaide-based Rise High Financial Solutions
"The general consensus is that we might see another interest rate rise. But it's hard to say because the RBA may hold given everything. [For example], given the fact that the announcement of the budget has kind of slowed things down a little bit. But we still potentially have an inflation problem. So I think that the general trend will be for interest rates to increase this year. Whether the RBA decides to hold off this time, just to get a bit more information and let the market settle a bit, is unclear. That might be something they decide. But I think another interest rate rise is on the cards. And if it doesn't happen this time, it might be next time."
Owner and senior broker at Perth-based Elite Finance Australia
"The RBA will probably hold at the moment. They'll just wait for things to settle a bit after the whole negative gearing, CGT [tax changes] and everything else. So, I think they'll hold at this stage."
Founder and director at Adelaide-based brokerage SA Wealth
"I think they'll hold. I think it's too preemptive to reduce rates. And if they increase, it'll sort of decimate consumer sentiment. What I've seen lately, out there, is how the increases and also the budget changes have all hit in one, and really taken a toll on consumers. There's still activity out there. But the fringe, sort of, buyers and transactions are starting to wean away. Capacities are sort of diminished; households are coping, businesses are coping. It's really tough out there in general; it's a bit of a grind. But in saying that, I think that all of this is fairly fresh, and the RBA doesn't know where things are going to land in terms of the proposed changes. So most likely I would think they'll hold. It would be very preemptive to go higher or lower with the changes right now."
Head of sales at fintech platform Quickli
"The Reserve Bank is likely to leave interest rates unchanged at this week's meeting. First, Australia's economy is growing very slowly, the slowest growth since COVID and the 2008 financial crisis. At the same time, households are under pressure. Quickli's data shows that people's incomes have risen by 5.4% over the past 12 months. But their everyday costs — fuel, food, rent and services — are rising too, which are eating into that income gain.
Also, the RBA has already raised interest rates three times recently. For families with home loans, this means bigger monthly repayments just as their budgets are already tight. Pausing rate increases now makes sense. It gives the economy time to adjust to the changes already made,and lets the RBA see the real impact before making any more moves. When the economy is struggling and household budgets are stretched, another rate increase would make things even harder. The sensible call is to pause."
Principal and broker at Sydney-based Astute Financial Management
"The RBA will probably, more than likely, hold, and wait until more dust settles. And then we'll hopefully see them drop later in the year. The RBA really wants to see if people can get through this period of uncertainty, with auction clearance rates really falling off a cliff and investors now wanting to hold their properties, not sell them, which means that you have the same challenge of not enough supply. Because people can't buy them if they don't sell them. And also there are challenges with the legislation changes around capital gains tax and negative gearing. It's certainly been a challenging environment for a lot of families. Because they're hurt — not only by higher interest rates — but also the cost of living rising and the cost of fuel, everything. Hopefully, we'll see the RBA drop later in the year. Because even major banks have indicated that a drop could occur, optimistically, around spring. So let's hope so."
Co-founder and co-chief executive officer at Melbourne-based 42 Property
"Potentially, there could be a rate rise, especially given what's been happening in the market, and the RBA has obviously shown an appetite to try and keep everything under control. And there have been a few other commentaries as well around a couple of other rate rises expected during the course of the year. So I wouldn't be surprised if the RBA made another hike. It wouldn't be ideal. But I think the RBA is just trying to control everything before it gets out of hand."
Co-founder and managing director at digital home loan and comparison platform Rateseeker
"We expect the RBA to hold rates at this meeting. Inflation is still above target. But the signs of strain are hard to ignore. Household spending is softening, mortgage repayments are eating into budgets and consumer confidence is fragile. Another hike right now would kick people who are already down.
The amount of uncertainty and general market noise at the moment is making this cycle particularly difficult to navigate. From our perspective, a hold remains the most likely outcome. What's more interesting is how quickly expectations have changed. Just a few months ago, markets were preparing for more rate hikes, whereas now the conversation is gradually shifting towards when cuts may eventually arrive. The reality is there may still be bumps in the road ahead."
