Australian recession fears: Top economist Shane Oliver warns another interest rate hike by the...

Top economic experts are concerned that Australia could slide into a recession if the Reserve Bank decides to increase interest rates on a single occasion.

The national bank has increased the interest rate on physical currency 12 times since May 2022, reaching the highest level in 11 years at 4.1 percent. This signifies the most vigorous speed of adjusting monetary policies since 1989.

According to the futures market, there is only a small probability of a rate hike on Tuesday, estimated at around eight percent.

Nevertheless, financial institutions and economists are foreseeing an additional increase at some point prior to the conclusion of the year as an effort to control and diminish inflation.

Despite a drop to six percent in June, the consumer price index continues to exceed the Reserve Bank of Australia's goal of two to three percent.

Specialists such as Shane Oliver, the chief economist at AMP, have cautioned that an additional rise in rates could potentially be a critical juncture.

Prominent financial experts are forecasted that Australia might experience a recession if the Reserve Bank chooses to increase interest rates once more.

According to Dr. Oliver's statement to Daily Mail Australia, we have reached a 50 percent probability of plunging into a recession.

However, we haven't reached that stage yet, so there's still a chance that the Reserve Bank may maintain the rate.

However, as the interest rates increase, the likelihood of a recession becomes greater.

Dr. Oliver stated that the excessive amount of debt within households, caused by property prices that are beyond people's means, heightens the possibility of a recession. This is due to the fact that larger monthly payments towards mortgages exhaust one's savings.

He characterized Australia's potential recession prediction as a 'narrow escape'.

The Governor of the Reserve Bank, Philip Lowe, has contended that increasing interest rates offered a more convenient solution to combatting excessive inflation, as governments displayed hesitancy towards raising taxes.

According to Dr. Oliver, this indicates that the responsibility for unpopular decisions would fall on the Reserve Bank rather than the politicians.

He stated that there is a possibility for the government to get involved.

There are numerous actions that the government has the capability to undertake, but they are not well-received by the public. Therefore, the responsibility ultimately falls on the Reserve Bank.

Paul Bloxham, the chief economist of HSBC Australia, expressed confidence that the central bank would most likely raise interest rates once more due to persistently high levels of inflation.

According to him, in general, we believe that the RBA is almost finished with increasing interest rates, but it is probable that they will implement one more increase, which we anticipate will occur in August. He shared this information with the Sydney Morning Herald.

The cash rate has been increased 12 times by the central bank since May 2022, making it the most intense series of rapid rate hikes seen since 1989 (illustrative image)

The AMP chief economist, Shane Oliver (depicted), characterized the anticipation of Australia falling into a recession as a 'near miss'.

Skeptical of the possibility of a recession, economist Saul Eslake expressed his belief that certain sectors of the economy still retained robust demand.

He informed Daily Mail Australia that there is a chance, it cannot be ruled out completely. However, he still believes that the likelihood of it happening is relatively low.

Mr. Eslake indicated that factors like the increase in population and the comparison of our economy to countries like the US, which has a higher interest rate but is not experiencing a recession, are contributing factors that suggest a recession might not happen.

He also mentioned the improvement in consumer trust, the resurgence of the real estate industry, and the decline in retail transactions.

"We haven't reached that stage yet. It's still conceivable that the Reserve Bank will maintain interest rates," he remarked.

Based on the current information we have, I believe it is unlikely that we will experience a recession at this point.

The Australian economy might face a recession in 2023 or 2024, marking the first time this has happened due to increased interest rates since 1991. This situation arises as interest rates soared to a staggering 18 percent towards the end of 1989.

Out of the four major banks, Commonwealth Bank, Westpac, and NAB are forecasting an additional increase in rates on Tuesday, though ANZ holds a different view.

Both the Commonwealth Bank and Westpac have predicted a 0.25 percentage point rise on August 1st, which would elevate the cash rate to 4.35 per cent.

If their forecasts come to fruition, this will mark the 13th time in the last 15 months that the Reserve Bank of Australia has increased interest rates.

Tuesday's upcoming Reserve Bank board meeting will mark governor Philip Lowe's penultimate gathering before his term concludes on September 17.

A person who owes around $600,000 would experience an increase of $99 in their monthly payments, amounting to an annual total of $18,744 compared to the beginning of 2022.

This indicates that the amount borrowers would need to repay would have dramatically increased by 67.7 percent in just over a year, resulting in an additional payment of $1,562 compared to their previous repayments.

Regardless of the decrease in inflation from 7% to 6% in June, down from the previous annual rate of 7% in the March quarter and the highest level in 32 years at 7.8% in late 2022, experts are still forecasting additional increases in interest rates.

The central bank, known as the Reserve Bank, predicts that the current unemployment rate, which is the lowest it has been in 48 years at 3.5 percent, will increase to 4.5 percent by the conclusion of the upcoming year. This level is considered the point at which inflation will not accelerate due to unemployment.

Dr Lowe will only have one more Reserve Bank board meeting after Tuesday. His term as governor will end on September 17.