This article is from the Australian Property Journal archive
AUSTRALIANS will have to wait until 2025 for an interest rate cut reprieve, and the Reserve Bank’s governor Michele Bullock again warned that the board is “not ruling anything in or out” on future movements.
As widely expected, the RBA held the official cash rate at 4.35% at its November meeting.
Bullock said underlying inflation in September quarter was “still too high”.
“We have made good progress. But as we’ve seen throughout the year, this last part of the job of getting inflation down is not easy or straightforward.”
Trimmed mean inflation, the key measure that the RBA takes into greatest consideration, fell to 3.5% year-on-year in the September quarter, down from 4% in the June period.
The RBA’s target range is 2% to 3%. It is forecasting trimmed mean inflation to hit 3.0% by June, and be at 2.8% by the end of 2025, drifting further down to 2.5% over 2026.
High mortgage rates and soaring prices have driven housing affordability to its worst level on record, according to PropTrack, as Australians work overtime, take on second jobs, and even skip on healthcare costs in a bid to break into, and stay in, the heated market.
“We believe that settings are restrictive, and we need to keep rates restrictive for the time being. The board needs to be confident that inflation is moving sustainably towards the target and we need to see more progress on underlying inflation coming down,” Bullock said yesterday.
“We’re watching the data closely, and we’re not ruling anything in or out.”
Bullock said the economy is “not growing, and we know that in per capita terms, it is declining, and consumption per capita is declining, and what’s keeping aggregate demand, even though it’s not growing very much…is population growth.”
“We’re saying that aggregate demand is still above the ability of the economy to supply.”
ANZ head of Australian economics, Adam Boynton said noted the forecasts in the RBA’s Statement on Monetary Policy (SMP) had lowered the trimmed mean inflation, GDP growth and wage price index (WPI) forecasts and increased the unemployment rate estimates.
“While most of these are small changes, the forecasts do appear to have evolved in a more neutral direction than the rhetoric,” he said.
Tim Lawless, research director at CoreLogic Asia Pacific, said, “At the very least, the decision to hold interest rates at 4.35% should provide a further boost to household confidence, along with clear signs that inflation is moving in the right direction and the next move is likely to be down, albeit with some uncertainty around the timing of cuts.
“A further rise in sentiment is a positive for housing, but we aren’t likely to see stronger housing outcomes until borrowing capacities improve and barriers to mortgage serviceability assessments are reduced.”
Each of the big four banks are tipping an interest rate cut in February. ANZ is expecting 0.75% worth of cuts by December 2025, with Commonwealth Bank expecting 1.25% of cuts by December next year, and NAB has a forecast of 1.25% of cuts by June of 2026. Westpac expects 1.0% worth of cuts by December 2025.
Graham Cooke, head of consumer research at Finder, said pressure was mounting for a rate cut in February.
“Even though inflation has hit the RBA’s target window of 2% to 3%, this doesn’t trigger the RBA to automatically start cutting rates – which will disappoint homeowners,” he said.
“With a record high 47% of borrowers struggling to make their repayments in October, thousands will be forced to cut back on spending in other areas.
“Many are depending on the multiple rate cuts predicted to come in 2025,” Cooke said.
One in five millennial and gen Z Aussies don’t think they’ll ever be able to afford their own home – almost double from the 11% in 2021, according to data from Finder’s Consumer Sentiment Tracker.
Australian Retailers Association CEO Paul Zahra said that with peak season in full swing, a rate cut would have given retailers much-needed confidence as they look towards Christmas and the New Year.
“Small businesses are particularly vulnerable, with ongoing pressure from many directions including higher business costs across the board.”
He said a record number of shoppers are expected to turn to the Black Friday and Cyber Monday sales to buy Christmas presents to make their household budgets stretch further.
