David Koch has forecast that the Reserve Bank of Australia (RBA) will not increase interest rates next month, raising hopes for millions of Australian mortgage holders. The Compare the Market economic director's prediction contradicts the expectations of the Big Four banks, which anticipate a rate hike at the RBA's next meeting on May 5.
Big Four Banks Expect Rate Rise
ANZ, Westpac, Commonwealth Bank, and NAB have previously warned that the cash rate will be raised by 0.25 percentage points, bringing it to 4.35 per cent. However, Koch claims the RBA may resist hiking rates due to the knock-on effect of the Iran war.
'Because that interest rate increase, or the equivalent, has already come through in higher petrol prices, I reckon they might hold the line,' he told the Herald Sun. 'Consumer confidence has plunged, and business confidence has fallen to almost record lows. The Reserve Bank doesn't want to crush consumers and businesses with another interest rate increase.'
Impact of Middle East Conflict
The Middle East conflict has led to petrol shortages across the country, with diesel prices soaring above $3 a litre, forcing the Albanese government to halve the fuel excise. According to the NRMA, the average price of regular unleaded is now 183.2 cents per litre, while diesel averages 253.6 cents per litre.
If the interest rate is increased by just 0.25 percentage points, mortgage holders could pay an additional $157 per month on a $1 million loan, according to Compare the Market.
Perfect Storm Ahead
One economic expert told Daily Mail that a perfect storm of fresh inflation and interest rate figures will collide with the Federal Budget on May 12, while conflict in the Middle East continues. AMP chief economist Shane Oliver predicted a sharp 1.5 per cent increase in monthly inflation.
'We are going to see a spike,' he said. He predicts that fuel prices jumping by around 30 per cent in March could add more than a full percentage point to inflation, lifting it past five per cent year-on-year and forcing the RBA to raise rates.
'It seems that it is not just higher fuel prices and fuel levies that are on the way up, but everything from airfares to toilets,' he added. 'But it was welcome news to see the federal government moving to rein in the rapid growth in spending on the NDIS. Government spending has been a major reason behind Australia's cost of living and inflation problem, and the blowout in spending on the NDIS has been part of that.'
Inflation Data
The Consumer Price Index (CPI) was 3.7 per cent in the 12 months to February, down slightly from 3.8 per cent in January. Trimmed mean inflation, which excludes volatile items, was unchanged at 3.3 per cent. The RBA's inflation target is between two and three per cent.
Oliver cautioned that inflation risks are not just coming from within Australia, adding that there is still a 'significant risk' the Iran war could re-escalate if a deal is not reached soon. 'Trump's demeaning and humiliating social media posts may also be encouraging Iran to dig in,' he said. 'The key thing to watch remains the Strait of Hormuz, and despite a brief spike in ship traffic a week ago, it remains effectively closed. While a bout of mild stagflation is baked in, the clock is now ticking on whether this turns into a more severe bout like that seen in the 1970s.'
The 1970s fuel crisis consisted of two major supply shocks: in 1973, an embargo by Arab oil producers on Western nations supporting Israel during the Yom Kippur War, and a second crisis in 1979 prompted by the Iranian Revolution.
