Experts say there are many other factors in play, such as the price of oil and rental demand, that may influence more rate hikes in the coming months.
Bilgehan Karabay, Associate Professor, Economics
Topics: interest rates, inflation, cost of living
“In light of the recent easing of inflation growth, the RBA has decided to keep the interest rates on hold for the second month in a row.
“While the inflation rate is still far from the RBA’s target of 2%, the potential negative effects of higher interest rates on economic growth seem to be concerning the board members.
“At the same time, they are also careful about the labour market effects of tighter credit conditions.
“Given the uncertainty regarding the time frame in which interest rates operate (there is a lag of 12 to 18 months), they decided to wait for more data to justify further rate hikes.
“However, this does not necessarily imply that we are at the end of the interest rate hike cycle.
“Recently, oil prices have been increasing. If this continues, we will likely see a spike in inflation again, which will require the RBA to raise rates again.
“When we look at the composition of inflation, it seems like goods inflation is more responsive to interest rate increases than services inflation.
“This is valid not only for Australia, but also other economies. Given the tight rental market, rental prices continue to put pressure on inflation.
“In addition, house prices seem to have plateaued, which is due to two effects that offset each other – on the one hand, high interest rates decrease loan applications and curb demand, on the other, high construction costs limit housing supply.”
Associate Professor Bilgehan Karabay researches international trade, with a specific focus on the political economy of trade policy and international agreements. His research also covers the economics of information and uncertainty. Prior to starting his academic career, Bilgehan worked at the Central Bank of the Republic of Turkey as an economist.
Dr Peyman Khezr, Senior Lecturer, Economics, Finance and Marketing
Topics: inflation, RBA, mortgages, home ownership
“Inflation is on its way down, but there is still a long way to go before reaching its target of 2%.
“There's a risk in maintaining the current interest rate. Additionally, further risks and pressure on mortgage holders could arise if the RBA decides to raise the rate by another 0.25 percentage points. Perhaps transitioning to an increment of 0.1 percentage points is a less risky strategy, compared to either standing pat or increasing by 0.25 points.”
“Mortgage holders still need to be wary of what’s to come. At the end of the day, high inflation is still going to put financial pressure on them.”
Dr Peyman Khezr Peyman is a Senior Lecturer in the School Economics, Finance and Marketing at RMIT a member of RMIT’s Behavioural Business Lab. He is an applied market designer with an interest in the housing market.
Bilgehan Karabay, email@example.com (number on request)
Peyman Khezr, 0401 667 594 or firstname.lastname@example.org
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