By Marian Edmunds

How can Australian homeowners stave off the real threat of losing their homes in a climate of high interest rate and rising inflation? Will the Reserve Bank of Australia (RBA) raise interest rates again soon?

Top lenders have raised interests rates separately to the RBA in recent weeks taking the onus off the central bank to raise rates again soon.

The RBA is likely to keep rates on hold for the rest of the year and beyond, says the chief economist for SonRay Capital Markets Clifford Bennett. However, he doesn’t rule out a rate cut around December or next year. “I think they’ve [the RBA] underestimated how severe the slow-down is in the domestic area of the economy, and that is, to some extent, being disguised by the ongoing export strength, which will remain quite robust.”

Bennett says the current climate in a Australia closely resembles early to mid 2006 in the US with falling property values in the outer suburbs, and the finance community heavily focused on inflation, and aggressively hiking inflation, then having to unwind that rapidly.

The Reserve Bank could be setting itself up to follow a similar pattern, says Bennett, adding that none of the rate hikes this year were necessary. “I don’t think they’ve had any impact on inflation whatsoever,” he says.

“It all comes down to an error in feeling that a domestic monetary policy can affect international price pressures,” he says.

The outlook for Australia going into the end of the year is bleaker than most people would like to admit, says Bennett. “Australia could have the recession it doesn’t have to have towards the end of this year if the Reserve Bank continues to hike interest rates thinking it can slow inflation.”

Inflationary pressures remain regardless of your interest rate settings domestically, he says. “Hiking interest rates in Australia is not going to slow the Chinese economy, or to dampen the price of oil or food prices,” says Bennett.

“The latest lift in lending rates by the commercial banks, will virtually deliver the rate hike that we were expecting by the RBA,” says Equities Economist Savanth Sebastian at CommSec.

“For that reason we have removed the rate hike we had expected in August.” “Nevertheless, the risks still lie to an increase in consumer spending and domestic demand due to the boost to the terms of trade. We expect the RBA to retain a firm tightening bias and believe it is still likely that a further rate hike of 0.25% may be necessary towards year end.” Household budgets are under stress with rising fuel prices, and interest rate hikes but when you take into account the tax cuts just coming in with an employee gaining about $100 a month on average, that essentially puts consumers back in front, says Sebastian.