Frustrated mortgage holders face decades of further rate hike, a leading economist warns, as the RBA loses patience with its fight against inflation.
EQ Economics managing director Warren Hogan told News24 that interest rates would have to stay higher for years to come in order to tame inflation.
“If long term is three to four years. unfortunately it doesn’t look good,” he said
“We could see a cash rate around 5 to 6 per cent as a normal cyclic high point for interest rates.”
Mr Hogan said the usual economic cycles would continue to impact rates, but the long-term trend of a falling cash rate could be over.
“We are now in a long upward trend for interest rates and wages,” he said.
“We are going to have cycles, but after 30 years of interest rates falling, we probably have a few decades of interest rates rising.”
RBA changes stance
Mr Hogan also claimed the RBA had changed plans from a watch-and-act approach to being more aggressive on interest rates.
“I think something has changed in the last few months. I think the leadership team, the governor, the deputy governor, and all the senior economists there have lost patience with inflation,” he said.
This follows nearly five years of the central bank missing its 2 to 3 per cent inflation target.
Still, money markets are pricing in just a 27 per cent chance of a rate hike in November when the RBA meets on Melbourne Cup day.
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The RBA has lifted the cash rate four times by 100 basis points in 2026 to 4.60 per cent.
“The fact we are seeing a couple of speeches and some recently dropped into the schedule – including a 60 Minutes interview – suggests to me that the odds of a rate hike are higher than 27 per cent, so I am sticking with a rate hike in November,” Mr Hogan said.
“Inflation is problematic, it is not just undermining our economy, our living standards, it is damaging our politics and these ramifications only get worse as time goes on.”
Mr Hogan said “we will be lucky” if November was the last interest rate hike.
The latest Australian Bureau of Statistic data shows headline inflation worsened to 4.0 per cent, largely due to the government’s temporary fuel excise tax cut ending.
Meanwhile the all-important trimmed mean inflation rate – which strips out the top and bottom 15 per cent of items – came in at 3.60.
Both figures are above the central bank’s target of 2 to 3 per cent.
Commonwealth Bank chief economist Luke Yeaman said the “last mile” on inflation was proving difficult.”
“If this is the correct way to look at the economy, then the RBA’s work is largely done,” he said.
“We should see inflation gradually turn down over coming months and interest rates can stay on hold from here.”
Mr Yeaman said the lagging impacts of higher interest rates that can take up to 18 months to be felt, slowing consumer spending, rapidly falling house prices and higher fuel prices would all take pressure off inflation.
“With households already under pressure and a depressed housing market, any further rate hikes risk tipping the economy over the edge,” he said.
“This argues for a conservative approach to policy, with the RBA staying in ‘finetuning’ mode to avoid crashing the economy.”
Jobs data unlikely to stop November rate hike
Mr Hogan predicts the RBA will largely ignore last week’s “volatile” unemployment figure, which showed 39,000 Australians lost their jobs.
Unemployment rose to 4.7 per cent, its highest level since the Covid pandemic but still well below the historical average.
“I think the most sensible strategy for them is to get two rate hikes in, another one in November, and then they’ve got the whole of summer to sit back and watch,” Mr Hogan said.
He said households could only spend between 0.5 to 1 per cent more without lifting inflation further due to high levels of government spending.
Meanwhile VanEck head of investments and capital markets Russel Chesler said the RBA’s focus was on inflation over protecting jobs.
”Even though the unemployment rate has increased slightly to 4.7 per cent, inflation will be the primary factor that the RBA will be looking at when deciding whether to increase rates,” he said.
“We could very well see rates still increase this year, with inflation remaining stubborn.
“Inflation is being hit from two sides. We have the imported or international effect mainly driven by oil prices and then locally continuing homegrown cost pressures.”