This article is from the Australian Property Journal archive
RESERVE Bank governor Michele Bullock warned that interest rates will remain on hold “for the time being” after the central bank kept rates on hold for a seventh meeting in a row.
The official cash rate remains at 4.35%, sitting idle since last November’s bump.
“We didn’t explicitly consider an interest rate rise at this meeting,” Bullock told reporters at the post-meeting press conference.
“The way we framed the discussion really was around what had changed since August, and what would we need to see to go either a raise in interest rates or a lowering in interest rates?
“So there wasn’t an explicit alternative in the sense that I’ve talked about in the past.
“We’ve seen the June quarter national accounts, two sets of labour force figures and one monthly CPI indicator.
“We’ve considered in detail whether our current settings are sufficiently restrictive, and judged that based on what we know at the moment, rates will remain on hold for the time being.”
“The message clearly from the board is that in the near term it does not see interest rate cuts.”
Trimmed mean annual inflation fell slightly to 3.9% in the June quarter, remaining stubbornly above than the RBA’s target range of between 2% and 3%. Labour market conditions remain tight and could also extend the period of higher interest rates. The unemployment rate held at 4.2% in July and August, alongside strong jobs growth, low under-employment and a record-level participation rate.
The board’s central projection is for household consumption growth to pick up in the second half of the year as the headwinds to income growth recede, but there is a risk that this pickup is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market.
“Overall, the hold decision could provide a boost to consumer sentiment, as more households firm up their opinion that rate hikes are over and the next move from the RBA will be a downward one,” CoreLogic research director, Tim Lawless said.
“The only uncertainty at the moment is the timing and speed of rate cuts.”
That cut can’t come quickly enough for some Australians. Bullock warned earlier this month that some people may have to sell their homes as the nation grapples with sticky inflation and high interest rates, creating the highest level of mortgage stress in years.
The RBA estimates that around 5% of owner-occupiers with variable-rate loans are in a “particularly challenging situation” – that cohort’s combined total of essential spending and scheduled mortgage repayments is more than their income.
ANZ head of Australian economics Adam Boyton said the major lender’s view remained unchanged, and is expecting the first cut will be in February 2025, with the cash rate to end that year at 3.60%, marking the low for the cycle.
“Risks around the timing of the rate cut cycle currently appear skewed toward a later start. We do not expect the board to act on its tightening bias, which we judge to not be quite as strong as in August,” he said.
AMP’s chief economist Shane Oliver agreed on the timeline.
“Short of substantially higher unemployment, lower underlying inflation or a financial shock the RBA is likely to remain on hold in the next few months as it still sees too much excess demand and inflation. But easing demand, employment and inflation are likely to drive rate cuts from February.”
Graham Cooke, head of consumer research at Finder, said many homeowners are holding out for a cash rate cut, and 40% of homeowners say they are struggling to pay their home loan in September, according to Finder’s Consumer Sentiment Tracker.
The elevated interest rates are eating into household savings, which will lead to a jump in personal debt over the next 12 months, according to a Finder poll.
The value of home loans in arrears has risen for seven consecutive quarters, according to the Australian Prudential Regulation Authority.
Cooke said “the good news is that a rate cut is looking much more likely this side of Christmas” following the US Federal Reserve slashing American interest rates by 50 basis points last week.
The United Kingdom, European Union, Canada, New Zealand and China are among other countries to have recently started cutting rates.
