Have interest rates finally reached their peak in Australia?

The news that Australia's punishing round of interest rate hikes is either over or extremely close to being over should give battered mortgage holders and potential buyers some comfort.

Following two much-needed rate freezes, economists now expect the Reserve Bank of Australia (RBA) to either hold rates steady at 4.1 percent for the remainder of the year or introduce one more increase to 4.35 percent before Christmas.

According to Stephen Koukoulas, managing director of Market Economics, "I believe we are now at the peak of the rate rise cycle."

"I think that's very likely given all the recent data and the slowdown in inflation over the past few months. Because the economy is so fragile and retail sales have been so low, I believe the RBA will be patient and wait for the rate hike medicine to take effect”.

Dr. Philip Lowe, the outgoing governor of the RBA, seemed to imply as much when he announced a rate hold for August. "The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so," he declared.

The board once more chose to keep interest rates unchanged this month considering the uncertainty surrounding the economic outlook. This will give more time to evaluate the effects of the current increase in interest rates and the outlook for the economy.

According to Mathew Tiller, head of research and business intelligence at LJ Hooker Group, in the interim, the rate hold and the likelihood of either no further increases or possibly just one more hike will give everyone in the real estate market much more confidence about transacting.

He claimed that the continual rate increases—12 since May 2022—kept putting buyers at a disadvantage because they would have their financing pre-approved but then must postpone their activity after another rate increase to apply for additional approval.

But now that we're either at the top or very close to it, Tiller said, "they should have a lot more confidence moving forwards, so they can factor that into their budget and repayments." "Homeowners should also feel more at ease listing their properties.

Along with all the positive market metrics, such as rising prices, strong auction clearance rates, and shorter days on market, this indicates that there will be a lot more buyers out and about. Therefore, right now is a great time to buy or list a property.

According to the most recent Consumer Price Index data, inflation dropped from 1.7% in the March quarter to just 0.8% in the June 2023 quarter. At 6% annually, it is still significantly higher than the RBA's target range of 2 to 3%.

According to the most recent Australian Bureau of Statistics (ABS) data, retail spending decreased 0.8% in June 2023 after increasing 0.8% in May and decreasing 0.1% in April.

Retail turnover decreased significantly in June, according to ABS's Ben Dorber, head of retail statistics, because of lower-than-normal spending on end-of-financial-year sales. As cost-of-living pressures "continued to weigh on consumer spending," he said, "this comes as a result."

David Robertson, chief economist at Bendigo and Adelaide Bank, forecasted that these increases would be the last or nearly the last.

Although I believe we are at the peak of the cycle, I would advise against getting carried away with that belief, he said. "If we don't take a break until the end of the year, we might only have one more rate increase in November to raise the rate to 4.35%.

"But that depends on inflation staying low, and it's never easy to completely quell inflationary pressures, especially when unemployment is still at a 50-year low with labour shortages and low labour productivity. There is always a chance that those elements will contribute to inflation”.

The RBA is currently attempting to take a balanced approach and give itself as much leeway as possible. If inflation and the other economic indicators don't remain favourable, there might be one more rate increase or, at most, two.