The Reserve Bank’s August interest rate decision is likely to be a coin toss, with analysts split over the prospect of another increase amid fresh signs the property price rebound is losing steam.
The central bank’s board will announce its verdict at 2.30pm AEST on Tuesday. Fifteen economists predicted the cash rate would be raised another 25 basis points to 4.35%, which would be the 13th increase since last May. But 11 forecast the RBA would extend July’s pause for another month, according to a Bloomberg survey.
Financial markets have downplayed the risk of an imminent rate rise. Investors put the odds of another increase this month at 14%, according to the ASX.
UBS’s chief economist, George Tharenou, who has correctly called the past dozen RBA rate rises, is among those predicting the central bank will increase again this month. Jarek Kowcza, a senior economist at St George, is another.
“Nevertheless, we concede it will be another close call and finely balanced decision,” Kowcza said. “Ultimately, the board’s interpretation of the balance of risks will determine which way the pendulum swings.”
Those risks range from inflation remaining too high for too long or the RBA overdoing the monetary policy tightening and sending the economy into a painful recession.
Melbourne-based ANZ and NAB predict the RBA will hold steady, while Sydney-based CBA and Westpac forecast a rate rise.
Last week’s inflation figures for the June quarter showed price pressures were continuing to ease but not in the service sector. June’s unemployment rate fell to 3.5%, near a half-century low.
Signs of economic weakness include a surprise drop in retail turnover for the month, indicating past rate rises were sapping spending.
Data out on Monday indicated that the previous interest rate rises were taking a toll on the recovery of the real estate market. Another 25 basis point increase would add $15 to monthly mortgage repayments for each $100,000 borrowed, according to RateCity, a data provider.
Investors borrowed less for housing in June, the first monthly retreat in that measure for three years, CBA said, citing RBA figures.
Owner-occupier housing credit growth was unchanged at 0.4% in June, Stephen Wu, a CBA economist, said. “Annual growth sits at 5.3%, well down from the peak pace of 9.3% seen in early 2022.”
While some households were struggling to repay mortgages, others were accelerating the pace of debt repayments, Wu said. Such payments were now near the record levels tallied during the pandemic.
Meanwhile, housing debt repayments accelerated sharply in June to near record levels. CBA reckons the jump is a response to higher interest rates. pic.twitter.com/2KkTVC4Acr
— @phannam@mastodon.green (@p_hannam) July 31, 2023
CoreLogic, another data group, said housing values extended their recovery for a fifth consecutive month in July with its home value index rising 0.7%. Since February, the index is up 4.1%, clawing back almost half the 9.1% decline from its record level in April 2022.
Still, the rebound has lost some of its momentum, easing from a 1.2% pace in May as more vendors put dwellings up for sale.
CoreLogic’s research director, Tim Lawless, said: “After leading the upswing, the monthly pace of growth in Sydney housing values has halved from a recent high of 1.8% in May to 0.9% in July.
“Sydney has also seen a significant rise in the number of fresh listings added to the market, 9.9% higher than the same time last year and 18% above the previous five-year average,” Lawless said. “An increased flow of new listings provides more choice and may be working to reduce some of the urgency felt among prospective buyers.”
Brisbane and Adelaide bucked the trend, with price rises quickening to 1.4% in both cities last month. Home values in the South Australian capital, along with Perth, were at a record high.
Canberra was the only capital city to record a decline in values in July, down 0.1%, while Hobart values were unchanged, CoreLogic said. Melbourne’s values were up 0.3% in July, trimming the decline from a year ago to 4%.
