Australian entrepreneur Mark Bouris has questioned whether the Reserve Bank has gone “too hard” as struggling homeowners brace for even more interest rate pain this afternoon.
The RBA board will hold its March meeting today, and is expected to lift the official cash rate by another 25 basis points to 3.6 per cent – the highest level since 2012.
Speaking with leading economist Stephen Koukoulas for The Mentor podcast last week, Bouris, the millionaire entrepreneur and founder of Wizard Home Loans and Yellow Brick Road, claimed the Aussie economy was “getting to the real sharp end of the deal”.
But the pair made the surprising prediction that while the March rate hike was all but inevitable, some relief might soon be on the horizon for families doing it tough.
Bouris asked Mr Koukoulas whether the RBA had been “going too far”, with the former Citibank chief economist replying that the board was “playing with fire”.
They both acknowledged the RBA had no choice but to lift rates again on Tuesday as it had already been priced into the market.
“They can’t shock the market by holding, no, that’s done,” Mr Koukoulas said, adding the RBA was now “running the risk of going a little too hard and not being patient”.
And they acknowledged that another two hikes after today’s had also already been priced into the market, despite tentative evidence coming through the economy that inflation could be starting to come down, and that the economy was “definitely” starting to slow down already.
“So they’ve got a really difficult balancing act about how many more hikes they actually need and then … will we be starting to talk rate cuts in 2024?” Mr Koukoulas questioned.
Mark Bouris has questioned whether the Reserve Bank has gone “too hard” as struggling homeowners brace for even more interest rate pain this afternoon. Picture: TikTokLeading economist Stephen Koukoulas said the RBA was ‘playing with fire’. Picture: TikTok
Bouris then pointed to Westpac chief economist Bill Evans, who recently said that he was expecting up to seven interest rate cuts by 2024/25.
“He’s talking a couple more hikes first like the market’s priced in, because the Reserve Bank is so hawkish and you know the inflation rate is still high, global conditions are impacting us in Australia, deceleration in inflation in the US isn’t panning out as quickly as many people would fear, so they’re pricing in more rate hikes from the US Federal Reserve … Bill [is] saying in a sense they need to keep hiking, even within a weak economy, to squeeze this inflation back to the target,” Mr Koukoulas said.
“But when they achieve it they’ll be able to say ‘we’ve leant on the economy enough now, we can sort of take a little bit of the pressure off the economy’ – that’s where I think he’s getting the seven rate cuts.”
The pair noted we were now in the midst of “the biggest hiking cycle since the early 1990s”, and said the RBA was intentionally trying to influence Australians’ spending behaviour to pull back inflation, by deliberately reducing the amount of cash available to them.
“If we don’t have the money, we don’t go and spend,” Mr Koukoulas said.
“If you’re earning X dollars, you allocate Y dollars to your mortgage, therefore you have that leftover to spend on holidays and cars and essential items too … when they hike rates, it puts up that interest component of your income.
RBA governor Philip Lowe’s days could be numbered. Picture: NCA NewsWire/Gary Ramage
“If your interest payments go up, say, $1000 per month, it’s big money – it means $12,000 less to spend elsewhere in the economy, so in a sense, even though you’re getting the same wage, your cash flow has changed.”
However, they said that while inflation was still relatively high, other fears expressed by the RBA, including a potential wage price serial – where wages keep climbing, pushing up prices, which in turn pushes wages and prices up higher still – have not come to pass, noting that Westpac’s Bill Evans actually revised down his outlook for wages growth.
They predicted that after today’s hike, the RBA would “sit tight” in April, May and possibly June to “wait and see” what impact the past hikes were making to the economy, before considering another one.
“I’m willing to bet a bottle of nice red wine that this is it now – the RBA just can’t keep hiking,” Mr Koukoulas said, noting that while inflation was sill too high, it was starting to head in the right direction, and that wages, the unemployment rate and house prices were all at “neutral” levels that meant more immediate hikes didn’t seem necessary.
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Meanwhile, Bouris hinted that divisive RBA governor Philip Lowe might not be in the top job by the end of the year, and that due to politics, his replacement might be more inclined to trim rates and admit their predecessor had “gone too hard”.
“There’s chatter a rate cut cycle could start in early 2024, so it’s off to the races,” Mr Koukoulas said, adding we were entering a “grey area” but were “getting close to the end of the rate hiking cycle”.
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