Top economist shares interest rate prediction every Aussie with a mortgage should hear

A financial expert has predicted the Reserve Bank of Australia will maintain interest rates at its decision in May, but there could be more pain to come for homeowners.

Shane Oliver, head of investment strategy and chief economist at AMP Capital, said the Reserve Bank would stand by Tuesday’s cash rate decision.

Although he predicted the central bank would keep interest rates at 4.35 percent, Dr Oliver did not rule out the possibility of a rate hike down the line.

Economists have warned that interest rates could be raised further throughout the year as the economy continues to grow and inflation remains above forecast levels.

Dr. Oliver warned the RBA could adopt a “tightening bias” that would deter Australians from buying a home or other major purchases.

According to Dr Oliver, an austerity bias is hitting the pockets of ordinary Australians, even without a mortgage or other major loan.

“The strengthening of prejudices does have an effect on you, for example as a home buyer you think ‘well, maybe now is the right time to get in because it’s going down,’” he said. news.com.au.

‘But when you hear that rates are going up again, the urge to go there and buy a new house is less.

‘More generally, when people are making spending decisions, they might think, “OK, I’ve been through this with my mortgage so far, maybe I can spend a little more because it looks like interest rates are going to fall.”

‘And then suddenly they say, ‘It could go up’ – it’s going to change people’s spending habits.’

He noted there is a chance the RBA could increase the rate, but that decision would be “an overreaction.”

Australian homeowners could wait longer than expected for mortgage relief from the Reserve Bank as they try to get inflation under control (stock image)

The RBA has opted to keep the cash rate at 4.35 percent in March and will announce their next decision on May 7.

Headline inflation fell to 3.6 per cent in the March quarter, compared with 4.1 per cent in the December quarter, new Australian Bureau of Statistics data released last week showed.

But underlying inflation measures were well above the Reserve Bank’s target of 2 to 3 percent.

The weighted median, which strips out the volatile price items to focus on mid-level increases, yielded an inflation value of 4.4 percent.

The trimmed average, the RBA’s preferred measure based on an average increase without major moving items, grew by 4 percent.

This was well above the Reserve Bank’s February forecast of a level of 3.6 percent by June 2024.