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Australian economist warns rates could rise six times, risking recession
Economist Warren Hogan has warned that Australia’s interest rates may need to rise much further to bring inflation under control, with a worst-case scenario pushing the country into recession. He argues that financial markets and households may be underestimating the pressure on the Reserve Bank, while higher rates are already weighing heavily on mortgage holders.
Australia’s cash rate is 4.85 per cent, and Hogan expects two further increases in the first half of next year after a rise widely anticipated for Tuesday. His worst-case forecast is six additional quarter-point rises, taking the rate to between 6 and 6.5 per cent within two years; he cited 7.25 per cent as a level reached before the Global Financial Crisis. Hogan said a 1 per cent cut to recurrent government spending could ease pressure on the Reserve Bank, while buyer’s agent Glenn Price warned a further rise could reduce borrowing power to about 10 per cent below a year earlier.
In short
- Hogan says rates could reach 6 to 6.5 per cent.
- He warns that level could trigger a recession.
- He says government spending cuts could reduce pressure for hikes.
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The case for
Further rate rises may be needed if inflation remains persistent, since allowing prices to keep climbing can erode household purchasing power and make it harder to restore stability later. Advocates of tighter policy would argue that a credible response by the Reserve Bank can anchor expectations, even though borrowers face real short-term strain.
The case against
Raising rates sharply could deepen mortgage stress, weaken household spending and push the economy into recession, with costs falling especially heavily on borrowers. Critics may argue that rate rises alone are a blunt response and that targeted spending restraint or other measures could reduce inflationary pressure while limiting harm to employment and household finances.
Explained simply
The Reserve Bank of Australia sets the cash rate, which influences the cost of borrowing across the economy. When inflation is high, it can raise rates to make spending and borrowing more expensive, aiming to slow price rises.
Higher rates can also increase mortgage repayments and reduce how much people can borrow to buy a home. That can weigh on household budgets and businesses, while government spending can add to demand in the economy.
Warren Hogan is an Australian economist who has forecast further rate rises if inflation remains difficult to control. A sustained slowdown in spending could curb inflation, but if economic activity falls sharply, Australia could face a recession.
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Originally published by Daily Mail as “Economist predicts ‘worst case scenario’ of six rate hikes for Australia in the next two years”.