Australia’s real interest rate among the lowest in G20 club of big economies

The Reserve Bank’s interest rate setting is among the “softest” in the G20 club of big economies even after 13 hikes thumping borrowers, new data shows.

While the official cash rate stands at 4.35 per cent, the country’s real interest rate — which adjusts for the impact of rising prices — is 1.55 per cent.

Australia is in line with the European Union and there are only four countries in the Group of 20 that are lower, according to analysis of fresh Bloomberg data.

The United Kingdom (3.3 per cent), United States (2.6 per cent) and Canada (2.15 per cent) are all higher.

Real interest rates give a clearer picture of how tight the Reserve Bank is holding the reins because they strip out the effect of cash losing value over time. Higher inflation hurts lenders by reducing the purchasing power of what borrowers repay.

Homeowners have felt the inflation surge in plenty of ways — real wages have dived, yet house prices rocketed for a period fuelled by interest rates at emergency lows. As rates were hiked, employment has remained stronger than many commentators anticipated.

Moody’s Analytics economist Harry Murphy-Cruise said the RBA had been more cautious in lifting interest rates than elsewhere, focusing on keeping the economy at full employment.

But he warned comparisons across nations were difficult because Australia has a higher share of home loans on variable interest rates.

“(It’s) being felt by a larger proportion of the population very quickly,” he told The West Australian.

“The RBA gets more bang for its buck for each hike.

“It is homeowners who have done the heavy lifting here.”

The Reserve Bank’s board met on Monday ahead of a decision on the official cash rate due on Tuesday.

Traders gave just a 5 per cent chance of a cut, the latest data tracking the market shows.

Two economists have warned in recent days that the RBA may wait much longer than expected to lower rates.

Judo Bank chief economic advisor Warren Hogan said the central bank would probably not shift for the foreseeable future — probably not until late next year.

“We now expect the RBA to be on a ‘long hold’ right through the year ahead,” Mr Hogan said.

“We see no compelling case for a rate cut, as inflation remains above the RBA’s target and the labour market is beyond full employment.”

But a hike was less likely than previously thought, he said in a research note on Monday.

September inflation data has showed price rises slowing enough to “allow the RBA Board to remain patient”, he said.

HSBC is expecting rate to fall in the second quarter of 2025. Yet there’s a chance rate cuts “don’t come at all”, the bank said in a note written by chief economist Paul Bloxham on Friday.