Warning Australia will go into a deep recession unless the Reserve Bank cuts interest rates in 2023

Australia faces a severe recession unless the Reserve Bank starts cutting interest rates by Christmas, big banks warn.

Tuesday’s 0.25 percentage point increase pushed the cash rate to a new 10-year high of 3.35 percent and marked the ninth straight monthly increase.

Three of Australia’s big four banks – Commonwealth, Westpac and ANZ – are now expecting two more hikes, which would take the cash rate to an 11-year high of 3.85 percent by April or May.

AMP Capital chief economist Shane Oliver said another quarter percentage point rate hike on top of that, bringing the cash rate to 4.1 percent, would trigger a severe recession.

‘Continue much further down the path of inflation-responsive rate hikes, which is a lagging indicator, while ignoring the lagged flow of rate hikes into the economy, signs of slowing demand, and improving downside risks. supply that plunges the economy into a recession. ‘You don’t have to have,’ said Dr. Oliver.

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He referenced former Labor treasurer Paul Keating’s famous quip, “this is the recession Australia had to have”, to point out that this would be the first interest rate-induced recession since 1991.

Commonwealth Bank Australian economics chief Gareth Aird said the RBA would have to cut interest rates by half a percentage point in the December 2023 quarter “to avoid a hard landing”, followed by cuts of 50 basis points to the first half of 2024.

Mark Bouris, the founder and former president of Wizard Home Loans, said the Reserve Bank’s focus on fighting inflation first would be catastrophic for the economy.

“People will start to panic, people will stop buying real estate, small business owners will start to collapse or go out of business and homeowners will stop spending,” he told Nine’s Today Show on Wednesday.

‘This is calamitous from my point of view.’

Mark Bouris, the founder and former chairman of Wizard Home Loans, said the Reserve Bank’s new intent to prioritize fighting inflation first would be catastrophic for the economy (he is pictured left with Canstar’s editor-in-chief, Effie Zahos)

Tuesday’s 0.25 percentage point rise has pushed the cash rate to a new 10-year high of 3.35 percent and marked the ninth straight monthly rise.

Treasurer Jim Chalmers played down the suggestion that higher interest rates would lead to a recession, citing his department.

“The expectation of Treasury forecasters is that higher interest rates combined with difficult global conditions will slow down our economy considerably, but at this time they don’t expect a recession here in Australia,” he told ABC Radio National.

Inflation last year rose to 7.8 percent, the steepest annual pace since 1990 and well above the RBA’s target of 2 to 3 percent.

Bouris said the RBA had not explained when it would start cutting rates, based on moderation in inflation levels.

“They have never indicated where the tipping point is from,” he said.

‘There is a lot of confusion and, to be honest, I think there is a loss of faith in the Reserve Bank.

‘They were wrong 18 months ago, I think they were wrong now.

“From my point of view, this is bad policy because no one knows what’s going on.”

ANZ was the first major bank to broadcast the latest RBA rate hike with its variable rate for 20 percent deposit borrowers rising to 5.19 percent, up from 4.94 percent, on February 17.

The NAB was next, raising its variable rate equivalent to 5.24 percent, from 4.99 percent, also from February 17.

If Commonwealth Bank did the same, as expected, its variable rate would rise to 5.22 percent from 4.97 percent.

The futures market has readjusted its forecasts for interest rates to reach 3.9% in July

A CBA borrower with an average mortgage of $600,000 would see their monthly payments increase by another $93 to $3,303, up from $3,210.

Annual repayments would be $11,964 higher than in early May 2022 when the Commonwealth Bank offered a variable rate of 2.29 percent under a record RBA cash rate of 0.1 percent.

RBA Governor Philip Lowe changed his language on Tuesday to warn of further rate hikes to tackle inflation, after suggesting that in 2021 rates would remain unchanged until 2024.

“The board expects that further interest rate increases will be needed in the coming months to ensure that inflation returns to target and that this period of high inflation is only temporary,” it said.

“The board remains resolute in its determination to bring inflation back on target and will do whatever it takes to achieve it.”

The futures market has reset its forecasts for interest rates to hit 3.9 percent in July.