While the horses may be running on Tuesday, all eyes will be on the Reserve Bank in a decision that will also stop the nation, as the central bank decides whether to increase the cash rate to curb inflation.
With 69% of experts expecting a rise, according to Finder, some experts are concerned about what another rate hike could mean to certain segments of the economy.
Graham Cooke, head of consumer research at Finder, said it was shaping up to be the rate decision that stopped the nation for the second year in a row.
“Inflation is falling but not as quick as many had hoped, giving the RBA reason to lift the cash rate on Tuesday,” Cooke said. “The effects of previous hikes are only starting to take effect, so another rate rise could spell disaster for many homeowners.”
Mortgage demand stable, but arrears climbing
Credit bureau Equifax was similarly concerned about the upcoming rate decision, citing troubling signs about mortgage demand and financial strain for the months ahead.
“Overall, mortgage demand fell -5% in Q3 compared to the same period last year, but relief from inflation and stagnant cash rates meant relatively stable mortgage demand over the last three months,” said Moses Samaha (pictured above left), Equifax executive general manager.
“However, this stability in mortgage demand may be short lived if rates increase. While the pause in rate rises has helped keep demand steady over recent months, earlier rate changes are still impacting existing mortgage holders.”
Equifax data shows arrears rates increasing year-on-year, both in the 90-plus days past due and 30-plus days past due categories.
The number of early-stage delinquencies in particular has continued to accelerate, with accounts in 30 to 89 days past due arrears 47% higher than 12 months ago.
Financial strain and the festive season
As the cost-of-living crisis intensifies, more people are suffering from financial strain and hardship.
Equifax said it had already seen signs of financial strain, with arrears rates creeping up across mortgages, credit cards and personal loans.
Smaha said another interest rate rise this month was likely to compound existing stress and have a flow-on impact across the economy.
“For many homeowners, increased mortgage payments may mean less spending money for the festive season,” Samaha said. “A drop in consumer spending at one of the busiest times of year will have a direct impact on retailers, particularly small and medium businesses who rely on the festive season to drive increased revenue.”
Higher interest rates, overall market uncertainty, and a decline in discretionary spending as household savings ratios drop and consumer spending power falls are also putting pressure on businesses.
“An additional rate rise could compound these existing stressors – particularly for sole traders and SMB owners who, according to Equifax data, are already seeing an increase in early stage mortgage arrears,” said Samaha.
The nation holds its breath
Despite the indicators that show the effects in the Australian economy, the reality for the RBA is that inflation has still not tracked down fast enough towards its target band.
In Finder’s RBA cash rate survey, two-thirds of the 45 experts asked forecast an increase with all of those anticipating a rate rise of 25 basis points – bringing it to 4.35%.
Mortgage Choice’s Anthony Waldron (pictured above right) was one of many experts who predicted an increase.
“Since taking on the role of governor of the Reserve Bank of Australia, Michele Bullock has been clear that another cash rate increase is not off the cards,” Waldron said.
“With the Australian Bureau of Statistics showing a 1.2% rise in inflation over the September quarter and a seasonally adjusted fall in the unemployment rate, the data points to a cash rate hike in November.”
Other industry experts have also predicted an OCR rise on Tuesday, including:
Among the contrarians were mainly economists and university experts with most citing the weaker economy and the lagged effect of previous rate rises as reasons for another pause.
“Given the recent economic figures released it seems that our economy is largely flat and adding another rate rise onto an already stressed economy does not seem warranted,” said Dale Gillham (pictured above centre) of Wealth Within.
Whatever the case, the bets are in, and the nation holds its breath for what will be another photo finish on the first Tuesday of November.