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Interest rates remain on hold for the 9th consecutive month as the Reserve Bank of Australia (RBA) continues to take a “wait and see” approach. As expected, the RBA has chosen to maintain the cash rate at 4.35%, citing current economic conditions and a cautious outlook on inflation.
The RBA has made just one increase to the official cash rate since July of 2023, as their battle with inflation remains the key concern of Australia’s central bank.
As we have seen over the past few months, the RBA is taking a more cautious and measured approach, carefully considering economic data and forecasts before making any significant moves.
What’s preventing a rate cut now?
The RBA pointed to several reasons for leaving rates on hold:
- Underlying inflation remains too high.
- The outlook remains highly uncertain for key areas of the economy
- Uncertainties regarding the lags in the effect of monetary policy
The RBA’s media release stated, “Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. Headline inflation was 2.8 per cent over the year to the September quarter, down from 3.8 per cent over the year to the June quarter.”
“This was as expected due to declines in fuel and electricity prices in the September quarter. But part of this decline reflects temporary cost of living relief.”
When you remove these outliers, underlying inflation (or the trimmed mean) was 3.5% over the year to the September Quarter. This was within the RBA’s expectation but “is still some way from the 2.5 per cent midpoint of the inflation target. The forecasts published in today’s Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026.”
When can we expect rates to come down?
Looking forward, many Australians are eager to know if rate cuts are on the horizon. While the RBA has maintained a steady course so far, the future looks promising for some easing.
According to Mark Bouris and Stephen Koukoulas on Property Insights, along with many leading economists, a rate hike is simply not on the agenda.
Exactly when the RBA will decide to cut rates simply depends on inflation and unemployment, says Koukoulas.
“We can speculate about house prices and the Aussie dollar, if it falls, that means they’re going to import inflation and so on. There are a million things that people can come up with. But at the end of the day, it’s really simple: where’s unemployment? If it’s trending higher, it goes against a hike and towards a cut. If inflation continues to track lower and lower still and is comfortably within the target, and the RBA is happy that it’s within the target…then we can afford to trim rates.”
The inflation data for the September quarter shows a positive trend, which could indicate the possibility of a rate cut sooner rather than later.
Koukoulas wouldn’t state that inflation is “under control” but the data was very positive.
“This is such an encouraging indicator again” as Koukoulas revealed annual inflation fell to 2.8% (down from 7.8% just two years ago).
“This is such an encouraging indicator again” as Koukoulas revealed annual inflation fell to 2.8% (down from 7.8% just two years ago).
The RBA won’t be “cracking the champagne” just yet, but it is extremely positive.
Koukoulas admitted, “there are distortions from government tax policy, but it feeds into inflation expectations, because you and me and everybody listening is getting that lower electricity cost.”
“They’re paying a bit less for the moment for their petrol, with inflation at 2.1% and wages at 3.5%…I’m certainly not saying the cost of living crisis is over, but it’s turning.”
“It’s good news that inflation is falling.”
Property Market Starting to Shift?
Housing, always a hot topic, isn’t immune to the broad strokes of economic policy. Interest rate trends directly influence mortgage payments, which can then ripple through the broader economy.
Koukoulas believes the housing market is cooling, stating, “Sydney’s about to turn slightly negative…Melbourne’s weak,” but also noted other cities like Canberra and Darwin are seeing declines. This shift signals a change in economic sentiment and consumer confidence, which could have far-reaching effects through policy changes and investment decisions.
Koukoulas’ suggestions proved correct, according to CoreLogic’s monthly Home Value Index, which reported a very minor 0.3% increase in home values in the month of October. CoreLogic’s research director Tim Lawless stated that more affordable parts of the property market are consistently showing stronger performances, which is a trend across a number of capital cities.
“A combination of less borrowing capacity and broader affordability challenges, as well as a higher-than-average share of investors and first home buyers in the market is the most likely explanation for stronger conditions across the lower value cohorts of the market.”
It seems to be a fairly consistent trend across Australia, as the growth in home values slows down, advertised stock levels have increased by over 12% since the ‘spring selling season’ began.
“Total listings are now 13.2% above the previous five-year average in Sydney and 13.0% higher in Melbourne,” Mr. Lawless said, attributing the weakening conditions in these markets to the benefits of more choice for buyers and therefore, less urgency to purchase.
“Despite the rise in listings across the mid-sized capitals, Perth, Adelaide, and Brisbane are still seeing advertised stock levels more than -20% below the five-year average for this time of the year. These markets remain well and truly in favour of sellers, although the balance is starting to gradually improve.”
Looking Ahead
What can you do if you want to be proactive about your repayments?
- Assess Your Current Loan Terms: Regularly review the terms of your existing mortgage to understand your interest rates, fees, and repayment schedule. This will help identify any potential areas for improvement and ensure you’re not overpaying.
- Refinance for Better Rates: Shop around and consider refinancing your home loan if you notice better interest rates available in the market. Lower rates can reduce your monthly payments or enable you to pay off your loan sooner.
- Make Extra Payments When Possible: Try to allocate any extra funds towards additional mortgage payments. Even small, additional payments can significantly reduce your loan term and the total interest paid of the lifetime of the loan.
- Fixed vs. Variable Rates: Evaluate the benefits of switching between fixed and variable interest rates based on current trends and your financial situation. A fixed rate offers stability, while a variable rate may provide opportunities for savings if rates decrease.
- Lean on the Experts: reach out to our experienced mortgage brokers to do all of the above for you. Our expert brokers will explore options tailored to your personal circumstances and can give you the insight to make sure you’re getting the most out of your loan.
Whether you’re a homeowner, a potential buyer, or a saver, understanding these changes and how they can affect your financial decisions is key. Stay informed and proactive!
