Overview of Will this be the last rate rise?
This ABC News Daily episode examines the Reserve Bank of Australia’s fifth interest rate hike of the year, raising the cash rate to 4.85%, an 18-year high. Host Sam Hawley speaks with AMP chief economist Shane Oliver about why the RBA lifted rates again, how it affects mortgage holders, whether the federal government should cut spending, and how likely Australia is to enter a recession. The central takeaway: the rate hikes are painful, but Oliver argues they are likely working and may be near their peak.
Key Points
- The Reserve Bank raised rates by 0.25% to 4.85% on Melbourne Cup Day, the fifth hike in 2023.
- The move takes interest rates to their highest level since November 2008.
- Each 0.25% hike adds roughly $110 a month to repayments on an average $700,000 mortgage.
- Shane Oliver argues the RBA is trying to slow inflation by reducing demand in the economy.
- He says the government could help by cutting spending or raising taxes, which would reduce pressure on the RBA.
- Inflation is being driven by broad-based price rises, not just fuel costs linked to the Middle East conflict.
- House prices are falling rapidly, and the housing downturn could add to recession risk.
- Oliver estimates a 40% chance of recession, though his base case is that Australia may avoid one.
- He believes this may be the last rate rise, or very close to the top.
Why the RBA Raised Rates Again
Inflation remains too high
Oliver says the RBA is focused on bringing down underlying inflation, not just the headline number. The central bank wants to prevent high inflation from becoming embedded in wage and price-setting behavior.
Slowing demand is the goal
Higher rates reduce spending power, especially for mortgage holders. That reduces household consumption, which should eventually ease inflation.
Government Spending and Fiscal Policy
Oliver’s argument
He says monetary policy is doing too much of the heavy lifting and that the government should also help by:
- cutting public spending
- or raising taxes
His view is that tighter fiscal policy would spread the burden more evenly and might reduce the need for further rate hikes.
Areas he says could be cut
Oliver points to examples such as:
- subsidies for electric vehicles
- broader “middle-class welfare”
- public spending that has risen faster than wages or economic growth
He argues government spending has grown too quickly and could now be trimmed without harming those most in need.
Inflation Isn’t Just About Fuel Prices
Broader price pressures
Although the war in the Middle East and higher fuel prices are adding pressure, Oliver says they are not the main cause of inflation.
He says price rises are happening across many categories, including:
- haircuts
- newspapers
- eggs
- insurance
- overseas travel
His view: the main issue is too much demand chasing too few goods and services.
Housing Market Fallout
House prices are falling fast
The episode notes that national house prices have declined for several months in a row, with the drop described as the fastest in 40 years.
Why prices are down
Oliver says the housing downturn reflects several forces at once:
- higher interest rates
- poor housing affordability
- changes to tax settings affecting investors
- weaker consumer confidence
- broader cost-of-living pressure
Why it matters
If prices keep falling, distressed sales could rise and deepen the economic slowdown. Oliver says a 15% fall in house prices is possible, which could increase recession risk.
Recession Risk
Oliver’s view
- He puts recession risk at about 40%
- He thinks Australia may still avoid a technical recession
- But he expects a per capita recession, meaning GDP per person could fall even if total growth remains positive
What could cushion the economy
He says AI-related business investment, especially in data centres, may help support growth.
Is This the Last Rate Rise?
Oliver’s answer: probably yes, or very close to the peak.
His reasoning:
- rate hikes are already slowing the economy
- household pain is filtering through gradually
- house prices are falling
- inflation should ease as demand weakens
He believes the policy will work, but only after a painful delay.
Notable Takeaways
- The RBA’s strategy is to cause enough slowdown to bring inflation down.
- Mortgage holders are bearing the brunt of the tightening cycle.
- The government, not just the central bank, may need to help cool inflation.
- The risk of recession is rising, even if it may not be inevitable.
- This may be the final rate hike of the cycle, or very near it.
Additional Promo Content Mentioned
The episode also includes a trailer for ABC’s podcast Disappearing in the Devil’s Triangle from The Expanse, about five men who vanished in rugged wilderness and the conspiracy theories that followed.