Finance expert and Australian businessman Mark Bouris has predicted interest rates will finally drop in an encouraging message to home borrowers.
The Yellow Brick Road home loans chairman said rate reductions were on the horizon for struggling Australians, with the Reserve Bank cash rate at an 11-year high and monthly mortgage repayments surging by 64 per cent in little more than a year.
‘The real big question today is not whether they are going to put rates up again. It’s how long they are going to hold these rates as they are,’ he told Sunrise on Friday.
‘It’s extraordinary. We’ve had a four per cent increase since a year-and-a-half ago. How long can this country sustain that without going into a recession?
‘If we see these interest rate increases having an effect on the economy in terms of growth, we saw recently, last week, retail sales are at an all-time low.
‘They look very poor. If that bleeds into the rest of the economy and other areas like the cost of coffee and all those things, we will expect to see rate reductions.
Australian businessman Mark Bouris (pictured with model Monika Radulovic) told Sunrise that it record-high interest rates were seen to be having an effect on the economy, rate reductions were on the horizon for Australians struggling to pay their mortgages
‘Westpac for example, has been predicting for some time rate reductions in the later part of 2024. For me, the greatest chief economist in the country is Bill Evans.
‘He is at Westpac, he has just retired. He and his team were at one stage very bold saying seven rate reductions in 2024. I think they will pare back from that.
‘I think sometime in late 2024, more realistically, is two or three rate reductions.’
The Reserve Bank of Australia on Tuesday paused interest rates for a second straight month straight, at an 11-year high of 4.1 per cent, after inflation fell.
Outgoing Governor Philip Lowe even hinted the rises might be over, with his seven-year term ending on September 17.
‘The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,’ he said.
‘In light of this and the uncertainty surrounding the economic outlook, the board again decided to hold interest rates steady this month.
‘This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.’
‘I think sometime in late 2024, more realistically, is two or three rate reductions,’ Mr Bouris told Sunrise viewers on Friday morning
ANZ, the only Big Four bank to correctly predict an August pause, said rates were likely to remain on hold, but cautioned rate cuts were a long way off.
The Commonwealth Bank, Australia’s biggest home lender, and Westpac have now also declared an end to the rate hikes.
NAB is expecting one more rate hike in November, taking the cash rate to a 12-year high of 4.35 per cent.
But it is expecting a rate cut in August 2024, and a series of rate cuts late next year that would take it down to 3.35 per cent, falling to 3.1 per cent in early 2025.
Tuesday’s decision to leave rates on hold marked the first back-to-back pauses since March and April 2022, before the hiking cycle began.
While this was the third pause in 2023 so far, rates have climbed 12 times since May 2022, marking the most aggressive pace of monetary policy tightening since 1989.
A borrower with an average, $600,000 mortgage has seen their annual repayments surge by $17,796 in just 15 months, with the banks increasing their variable rates even in months when the RBA didn’t move.
Monthly repayments have surged 64 per cent to $3,789, up from $2,306.
But the rate rises have reduced inflation, which fell to 6 per cent in June, down from 7 per cent in the March quarter and a 32-year high of 7.8 per cent at the end of 2022.
The Reserve Bank is now expecting headline inflation, also known as the consumer price index, to return to the top of its two to three per cent target in late 2025, instead of mid-2025 as predicted in May.
Mr Bouris has predicted several rate drops in the second half of 2024, in good news for those whose mortgage repayments have skyrocketed amid repeated interest rate rises
‘The central forecast is for CPI inflation to continue to decline, to be around 3.25 per cent by the end of 2024 and to be back within the 2–3 per cent target range in late 2025,’ Dr Lowe said.
The most dramatic level of monetary policy tightening in a generation has stirred fears of a recession, repeating what happened in 1991 after rates hit 18 per cent in late 1989.
AMP chief economist Shane Oliver said a recession in 2024 remained a 50:50 risk, arguing a 13th rate increase in little more than a year would make an economic contraction more likely.
‘The decision to hold makes sense given the faster than expected fall in inflation and the now high risk of recession,’ he said.
In a sign the rate rises are biting, building approvals fell by 7.7 per cent in June and by 18 per cent over the year, worsening housing supply constraints during a time of rapid immigration.
Deloitte Access Economics partner Stephen Smith said another rate increase would worsen the housing crisis without addressing global supply delays.
‘In fact, they are likely to make the situation worse by delaying a recovery in dwelling construction,’ he said.
Outgoing Governor Philip Lowe’s second last board meeting opted to pause the cash rate at an 11-year high of 4.1 per cent (Dr Lowe is pictured during a senates estimates in February)
Retail trade in June fell by 0.8 per cent but department store revenue plunged by 5 per cent in a month, with the Australian Bureau of Statistics data pointing to an economic slowdown.
Three of Australia’s Big Four banks – Commonwealth, Westpac and NAB – had wrongly expected a rate rise on Tuesday but the futures market had regarded an increase as only a 14 per cent chance.
Only ANZ had forecast a pause among the biggest banks, arguing retail trade falls were comparable with the Global Financial Crisis in 2008 and the early 1990s recession.
ANZ’s head of Australian economics Adam Boyton said the RBA was now likely to keep rates on hold.
‘Our expectation remains that the Bank is on an extended pause,’ he said.
‘On the risks around that view we continue to see rate cuts as being a very long way off. If the Bank does move in the near term, or even in the first half of 2024, higher interest rates are much more likely than cuts.’
