RBA Board Leaves Rates on Hold

The Reserve Bank of Australia (RBA) has just announced its decision to leave the official cash rate on hold at 4.35% for the seventh consecutive meeting.

This decision comes after an intense month of speculation and analysis from financial experts and economists across the country as calls for a rate cut increased.

This decision to hold reflects the RBA’s cautious approach, given the mixed signals coming from various economic indicators. While some sectors show signs of resilience, others continue to struggle.

What did the RBA say?

In their official statement, the RBA highlighted several key factors influencing their decision.

They noted that recent government policies, such as electricity subsidies, have helped alleviate some cost-of-living pressures. Whilst acknowledging some positive signs in the economy, the central bank’s “current forecasts do not see inflation returning sustainably to target until 2026.”

“While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high.”

The RBA said that the data they have on hand reinforces the need to “remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.”

Making Sense of the Decision

Leading economist, Stephen Koukoulas has been advocating for rate reductions in previous months, highlighting a number of signs that Australia’s economy is “incredibly weak” as well as the financial strain many Australian households have been experiencing since rates began rising in 2022.

Koukoulas told Yahoo Finance that it was “only a few months ago, there were a gaggle of economists forecasting a horrifying series of interest rate hikes by the end of 2024. As they lick their embarrassing wounds and engage in a bit of self-reflection of why they were so horribly wrong, investors are preparing for a series of interest rate cuts in Australia.”

He believes that the weakness, not only in Australia’s economy but, “in the global economy and the certainty that inflation is under control means that the oppressive interest rates will soon be reversed.”

This is a view shared by our Major Banks, with all economists of the ‘Big Four’ predicting the next move on interest rates to be a decrease.

The Commonwealth Bank is the only one of the Big Four banks still predicting a rate cut to come this year and stood firm on that forecast even after the RBA kept rates on hold at its August meeting.

In the latest episode of Property Insights, Mark Bouris and Koukoulas discussed how the recent intense scrutiny of the RBA’s thinking is a far cry from the almost 20 years of relative stability in cash rate decisions.

“It’s important that we don’t forget that the covid period and the period after the covid lockdowns with all those rate hikes, that’s not usually how central banks move interest rates.”

All of that is to say that when the RBA does decide to bring rates down, both Bouris and Koukoulas believe we’re not going to see a drastic drop in the official cash rate.

“Every central banker who’s spoken about rate cuts has said the same thing. All we are talking about in this upcoming rate cutting cycle is whether we see a total cut of 1% to 1.5%, 2% at most, if things are worse than expected. But that’s it.”

If over the next 12 to 18 months, we saw the RBA cut interest rates by 1.5%, that we see the cash rate fall to 2.85%.

The Housing Dilemma

According to the latest data from CoreLogic, the property market has shown mixed results:

• Price Disparity – Some regions continue to experience price growth, driven by strong demand and limited supply. However, other areas are seeing more modest increases or even slight declines. CoreLogic’s Monthly Housing Chart Pack says, “The change in home values continues to be highly varied across the capital city markets. In the August quarter, mid-sized capitals Perth, Adelaide and Brisbane, alongside Sydney saw values increase, while Canberra, Darwin and Hobart declined.”
• Sales Volumes – The number of property sales has remained relatively stable, indicating a balanced market where supply and demand are closely matched.
• Rental Market – Rental prices have also shown fluctuations, with some areas experiencing increased demand due to population growth and limited rental stock.

These trends highlight the importance of staying informed and adaptable in the current property market, by paying particular attention to the localised market trends. 

One of the long-standing issues in Australia, according to Bouris and Koukoulas, is simply the lack of housing supply on the market.

“We are not building enough houses! We’ve had this discussion for years, starting a decade ago, we need to build more bloody houses!”

“We’re having trouble getting councils to approve the land, getting the builders to build them. The government’s struggling to approve new initiatives.”

Preparing for Future Changes

With the uncertainty over the future direction of interest rates, it’s essential to stay prepared for changes. Here are some actionable steps you can take:

• Review Your Budget – Take advantage of the steady period of interest rates to review your household budget and identify areas where you can save or invest.
• Consider Refinancing – Explore refinancing options to secure a better deal on your mortgage and reduce your monthly payments.
• Stay Informed – Keep up-to-date with the latest economic news and property market trends to make informed decisions.
• Seek Professional Advice – Consult with financial advisors or mortgage brokers, like those at Yellow Brick Road, to get personalised guidance tailored to your needs.

By staying informed, seeking expert advice, and making strategic decisions, you can navigate the current economic landscape with confidence. If you want personalised guidance on your mortgage, reach out to an experienced YBR Home Loans Mortgage Broker in your area.