David Koch’s dire warning to Australia about interest rates

Money expert David Koch has warned Australians that another rate hike could be expected on Melbourne Cup Day if inflation does not moderate.

The Reserve Bank’s new governor, Michele Bullock, left interest rates unchanged at an 11-year high of 4.1 percent on Tuesday, but she hinted that rates could rise again because inflation is still too high.

‘Kochie’, the former Sunrise presenter and now economics director of Compare the Market, said a poor inflation reading in the September quarter could lead to the Reserve Bank raising rates again in November, on Melbourne Cup Day.

“If there is a reversal, and a substantial reversal that exceeds expectations, the Reserve Bank has said in all its commentary, as it has been doing for months, that it is ready to combat that with another rate hike,” he told to Daily Mail Australia.

New government charges and energy bill increases came into effect on July 1 and there are fears that they could impact the September quarter inflation figures due on October 25.

‘There have been quite a few price increases in the financial year and my concern is that this could produce a positive surprise. That’s why it’s critical,” he said.

Inflation rose six percent in the June quarter and Kochie said a deterioration in this figure could give the Reserve Bank an excuse to act.

A weakening of the Australian dollar over the past month – from 65 US cents to 63 US cents – also makes imports more expensive, contributing to inflation.

“They will be watching the decline in the Australian dollar, which makes imports more expensive,” Koch said.

A further rate hike on Melbourne Cup Day on November 7 would see monthly repayments rise by $100 on average to $3,908, while borrowers with a $1 million home loan would see their repayments rise by $165 to $6,513.

That’s based on a Commonwealth Bank variable rate rising to 6.79 per cent, up from 6.54 per cent, reflecting the RBA raising rates by 25 basis points to reflect cash rates rising to a twelve-year high of 4.35 percent.

“If people think the Reserve Bank is going to be their white knight on rates and come with rate cuts early next year, that’s not the case,” Koch said.

“I don’t think we’ll cut rates until at least the second half of next year, so rates will last longer than people expect.”

The less comprehensive monthly inflation figures for August had bad news, with the CPI rising to 5.2 percent, up from July’s level of 4.9 percent.

This pushed the consumer price index further above the Reserve Bank’s target of two to three percent, while petrol prices rose 14 percent over the year.

“Inflation in Australia has peaked but is still too high and will remain so for some time,” Bullock said on Tuesday.

‘There are significant uncertainties surrounding the prospects.

“Service price inflation has been surprisingly persistent overseas and the same could happen in Australia.”

Ms Bullock strongly hinted that another rate hike could be possible to bring inflation back to target by June 2025, as Australians grapple with a 13 per cent increase in electricity and gas bills and double-digit price increases for bread and dairy products.

“Further monetary policy tightening may be necessary to ensure inflation returns to target within a reasonable timeframe, but this will remain dependent on the data and evolving risk assessment,” she said.

“Returning inflation to target within a reasonable time frame remains the administration’s priority.

‘High inflation makes life difficult for everyone and harms the functioning of the economy.’

The rise in the CPI in August marked the first monthly deterioration in headline annual inflation since April – with the cost of living worsening for the second time since hitting a 32-year peak of 8.4 percent in December last year.

The futures market is also concerned. Investors betting on monetary policy now expect a rate hike in early 2024 instead of a rate cut as recently expected.

National Australia Bank expects a rate hike in November, making it the only one of the Big Four banks to predict another rate hike (for now).

A record number of 454,400 migrants moved to Australia in the year to March. Koch said high population growth would lead to rising unemployment, even if it has kept Australia out of recession so far.

“The number of vacancies is decreasing and also the mass migration coming in should cause unemployment to rise as not enough jobs are being created at the moment to match the huge influx of migrants,” he said.

‘Five hundred thousand new Australians in a year is quite difficult to absorb – it’s been great for retailers because it means 500,000 new customers have come into the country – without them the retail industry would be diabolical and we’d probably be in a recession. ‘

Ms Bullock has hinted that excessive wage prices, in an era of declining productivity and a low unemployment rate of 3.7 per cent, could increase inflationary pressures until unemployment rises to 4.5 per cent by the end of 2024.

“There are also uncertainties about the lags in the impact of monetary policy and how firms’ pricing decisions and wages respond to the slower growth of the economy at a time when the labor market remains tight,” she said.

“Wage growth has picked up over the past year, but is still in line with the inflation target, provided productivity growth picks up.”

Shortly before the RBA rate decision, new housing finance data from the Australian Bureau of Statistics showed a 2.2 per cent increase in August, with home loan values ​​rising 2.6 per cent.

ANZ head of Australian economics Adam Boyton said the Reserve Bank was likely to leave rates unchanged, but an increase was more likely than a cut.

“While we still see the RBA on an extended pause, signs in the August monthly CPI that inflation could be slightly higher than expected are consistent with the risk that the RBA could tighten again this year or early next year,” he said.

Ms Bullock replaced Philip Lowe as Australia’s most powerful central banker last month, following anger over the RBA’s rate hikes in just over a year, with the last hike coming in June.

This marked the most aggressive pace of monetary policy tightening since 1989, pushing monthly mortgage payments up 63 percent since spot rates rose from a record low of 0.1 percent.

Tuesday’s board meeting was the first ever to be chaired by a woman since the Reserve Bank was founded in 1960.

Ms Bullock replaced Philip Lowe on September 18 after his suggestion in 2021 that rates would remain in place until 2024 “at the earliest” led to Treasurer Jim Chalmers refusing to extend his term to 10 years.