With the Reserve Bank (RBA) due to announce its latest rate decision today, economists agree that a hold on rates is an almost certain outcome, with the central bank expected to maintain its hawkish tone in response to the most recent economic data.
But while most predict the RBA is likely to begin a round of cuts soon – although consensus has not been reached on the timetable – Judo Bank chief economic adviser Warren Hogan believes the central bank could have two additional increases under its belt.
Although unsure of his forecast, Hogan said: “I think it’s still more likely than not that the RBA will have to raise rates.”
“I will be more than happy to release this forecast if I see progress on inflation,” he said.
As a macroeconomist, Hogan believes the evidence is “starting to mount” that the RBA’s efforts to curb inflation are not yielding the desired results. Among this evidence, he says, is rising house prices, employment still “booming” and resilient credit demand.
The problem, he says, is that Australia’s macroeconomic policy has diverged sharply from global trends, traditionally characterized by synchronized movements.
“It is becoming more and more likely that trying a different strategy [to the rest of the world] “It’s not working – maybe we should have raised our interest rate above 5 percent last year, now we would be thinking about rate cuts,” Hogan said, adding that interest rates Interest is not the biggest threat, but stubborn and persistent inflation.
He believes Australia still has a chance of achieving a soft landing, but this depends on preventing any resurgence of inflation.
“Higher rates are needed to get us on the right track,” Hogan said.
“This is our best chance of staying out of recession,” he said, adding that Australia would almost certainly enter a recession if inflation picks up and forces the RBA to implement a series of rate hikes. rate in 2025.
Reflecting on recent Australian GDP figures, which indicate an economy supported by public spending and a public sector recession, Hogan said the data illustrated how “the government is crowding out the private sector”.
“We see it on the ground every day,” he said. “The government is pushing aside the private sector. If the government didn’t do this, I would say private sector activity would be higher.
“Of course, it is private sector activity, particularly investment, that will increase the capacity of the economy in the future. So it’s a double whammy: not only is government crowding out private activity today, it’s actually undermining our future activity.”
Hogan believes that the central bank, despite external pressure, understands the seriousness of the situation and is ready to act independently to safeguard the economy.
“It’s an extraordinarily complex macroeconomic situation, it’s unlike anything we’ve seen in 50 or 60 years, and that’s why economists have a hard time understanding it,” he said.
“The RBA understands this, which is why they are being so hawkish, as it were, because they have put their finger on the trigger for a rate hike. It’s the broader commentary, the government and other special interests who don’t want to see rates rise that make it difficult for them.
“But my view is that they are independent and, of course, they have expertise that others don’t have and they will ultimately make the right decision. Because they know that if they don’t do it, they will put our future in jeopardy and I don’t think they are ready to do that.
The RBA has so far signaled there will be no rate cuts this year. However, despite their forward-looking forecasts, some of Australia’s largest banks, including the Commonwealth Bank, are still planning cuts by the end of 2024.
Commenting on this, Hogan said he had “no idea” why some of the country’s most respected banks are ignoring the RBA’s words.
“I worked as a chief economist at a major bank, and I’ve been doing that in this country for 30 years, and I don’t understand why the largest, most respected, most successful bank in the country has economists who call him. for rate cuts with inflation well above target, unemployment is at a 50-year low…I really don’t understand why that’s the case,” he said.
“Big bank profits are 1.5 percent of GDP… There is no desperation in our banking system, so why do they think we need rate cuts?
Ultimately, Hogan believes that raising rates will result in a “better global economy next year” than would otherwise have been possible.
The RBA is expected to deliver its September rates call at 2:30 p.m. today, with two more meetings remaining in 2024.
