AMP’s Oliver calls further rate hikes ‘overkill’ for weakened economy
The Reserve Bank of Australia’s monetary policy board is widely expected on Tuesday afternoon to announce an increase in the cash rate to 4.6% from 4.35%, according to Guardian Australia. The decision would add another $100 to the monthly mortgage interest bill on a $700,000 loan.
If the board follows through, the cash rate would reach its highest level since late 2011. Some analysts are tipping a fifth rate increase later this year, on Melbourne Cup day, and financial markets are pricing a 60% chance of a sixth hike by mid-2027.
Shane Oliver, AMP’s chief economist, said two or three more rate hikes would be “overkill” given the already weakened state of the economy and families’ finances. According to the Guardian, petrol prices were pushing toward $2.40 a litre as the rate decision approached. A November increase would push the cash rate to 4.85% — the highest since just before the global financial crisis — while a further move to 5.1% “is going to cause major problems for households with mortgages,” he said, pointing out that debt burdens have become substantially larger over the past two decades.
Oliver warned that additional increases would be “devastating for the property market.” The higher the cash rate goes, the greater the chance of crossing a tipping point where a 10% decline in home prices becomes a 15-20% drop, he said.
Tom Devitt, senior economist at Housing Industry Australia, said the HIA’s national affordability index hit the lowest in history at the end of June. According to Guardian reporting, one silver lining from falling home values is that it makes it easier for first-time buyers to enter the property market. Devitt said he had expected affordability to improve over the second half of 2026 and into 2027 — a forecast predicated on the RBA not pushing borrowing costs higher. Tuesday’s anticipated rate hike, and the prospect of more to come, had changed the calculus, he said. “In this cycle we now don’t see any improvement in affordability at all,” Devitt said.
Taylor Nugent, a senior economist at NAB, said the prospect of more rate hikes suggested property values would fall further and for longer than anticipated. He added that the fundamental problem with Australia’s housing market — too many people chasing too few homes — was evident in an ongoing lack of rental properties and climbing rents. “Housing affordability is a challenge not just for people trying to buy, but people renting as well,” Nugent said.