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As the New Year unfolds, all eyes are firmly placed on the RBA with everyone wondering whether their attempts to control inflation will finally result in a steady year of interest rates.
The previous two years have been far from easy for mortgage holders and those looking to enter the property ladder, with the cash rate rising from a record low of 0.1% in May 2022, to a 12-year high of 4.35% where it currently remains.
So, the big question is – will the RBA alter this monetary pivot in its first policy meeting of the year? And what does this mean for you as a potential home buyer, existing homeowner or just anyone keenly observing Australia’s fiscal prospects?
The RBA’s cash rate is the pivotal interest rate at which financial institutions borrow and lend overnight balances to each other, within the country. As a tool to influence monetary policy, alterations to the cash rate can have far-reaching effects on various aspects of the economy, from economic growth and employment to the housing market and consumer spending. For Australians, whether it’s the interest they earn on their savings or the cost of their mortgage, the cash rate is a decisive dictator of their financial realities.
If you want to take a closer look, learn all about the RBA and interest rates here.
As of January 31, all four major banks are predicting a hold in the cash rate at the February board meeting:
BANK | Predicted Cash Rate Peak (2024)
CBA | 4.35%
ANZ | 4.35%
Westpac | 4.35%
NAB | 4.35%
The news of NAB’s prediction was quite interesting, as the major bank’s economists had predicted another rate hike in 2024, late last year.
However, inflation has continued to moderate, reaching a two-year low of 4.1%.
Federal Treasurer Jim Chalmers was keen to point out that inflation has fallen significantly from its peak of 7.8% a year ago: “This is not mission accomplished but it’s really welcome and it’s really encouraging progress.”
Chalmers is alluding to the fact that inflation remains above the 2-3% target range that the RBA has set its sights on, however, the inflation numbers are lower than the RBA predicted at this point in time.
Implications for Home Buyers and Home Owners
Any movement in the cash rate is sure to reverberate across the housing market. For home buyers, a lower cash rate can translate to more affordable loans; conversely, a hike could lead to higher borrowing costs. Existing homeowners will need to factor in the impact on their current mortgage rates and plan for potential changes in their financial outlay.
As we face the possibility of adjustments to the RBA’s cash rate in 2024, it’s imperative to remember that economic changes, while impacting many sectors of our lives, also present opportunities to get a hold of your finances. Whether the RBA decides to hold, raise, or cut the rate, being well-informed and proactive in your financial decision-making will be key to weathering the fiscal challenges and capitalising on emerging openings.