Business · Economy · 3 hrs ago
Economist warns Australian rates could reach 6.5% and cause recession
Judo Bank adviser Warren Hogan warned that Australian interest rates could rise sharply if inflation stays stubborn.
Australia’s cash rate is currently 4.85%, and a rate increase was widely expected on Tuesday.
Hogan forecasts two more rises in the first half of next year, beyond that expected increase.
His worst-case forecast is a cash rate of 6–6.5% within two years, which he says would likely cause a recession.
He argues current rates are hurting mortgage holders but have not slowed the broader economy enough to bring inflation down.
Hogan says governments could ease pressure on the Reserve Bank by reducing recurrent spending, potentially limiting the need for further rises.
The Reserve Bank’s next decision and the path of inflation will shape what happens next.
Judo Bank chief economic adviser Warren Hogan warned that Australian interest rates could reach 6 to 6.5 per cent in a worst-case scenario.
He said rates at that level would cause a recession.
Hogan forecast two further rate rises in the first half of the following year, beyond an increase widely expected on Tuesday.
He said persistent inflation could require more increases, while reduced government spending could ease pressure on the Reserve Bank.
The cash rate was 4.85 per cent at the time of the report.
- Who
- Warren Hogan, Judo Bank's chief economic adviser, warned about the outlook for rates and the economy.
- What
- He said rates could reach 6 to 6.5 per cent in a worst-case scenario and cause a recession.
- When
- He made the comments on Monday; a rate rise was widely expected on Tuesday.
- Where
- Australia.
- Why
- Hogan said inflation might remain stubborn and that monetary policy had not slowed the broader economy enough to bring inflation under control.
This story does not have two clearly opposing sides.
Hogan told ABC's The Business that rates might need to rise further if inflation remained stubborn.
A Reserve Bank rate rise was widely expected.
- Cash rate at time of report
- 4.85 per cent
- Hogan's worst-case rate range
- 6 to 6.5 per cent
- Further rate rises forecast by Hogan
- Two in the first half of the following year
- Worst-case increases described
- Six 25-basis-point rises
- Government spending cut Hogan said could prevent further rises
- 1 per cent of recurrent spending
1 source
What people are saying
I don't think the economy will withstand a cash rate much above six per cent, so the worst case is probably somewhere between six and 6.5 [per cent] in the next two years. We'd definitely have a recession, there's no two ways about that.
If inflation remains stubborn, who knows how high we'll have to go.
Government spending has exploded in this country in the last decade.
If the governments of Australia came out and cut fiscal policy recurrent spending by one per cent straight away, I think this could be the last rate hike we see.