RBA keeps rates steady on Melbourne Cup day

The RBA has opted to keep Australia’s official cash interest rate on hold at 4.35% today, passing up its second-to-last chance to provide rate relief to borrowers ahead of Christmas.

The decision to hold rates steady on Melbourne Cup day was predicted by market pundits, with no major banks currently tipping a downward move in the cash rate until February 2025.

Though the Consumer Price Index (CPI) rose just 2.8% annually in the September quarter, according to Australian Bureau of Statistics (ABS), this was mainly due to falls in electricity and fuel prices.

The underlying inflation rate, or the trimmed mean considered closely by the RBA, came in at 3.5% annually in September, putting it outside of the RBA’s 2%  to 3% target band for inflation.

The Reserve Bank board, in making its November decision, said the forecasts meant that the board did not see inflation returning to the midpoint target until 2026.

In the meantime, the outlook is uncertain with employment remaining strong and projections for household consumption to increase in the second half of the year.

Australian Property Home Loans director Adele Andrews (pictured above left) said she was “not at all surprised” by the RBA’s decision.

“While inflation does remain at the level the RBA is seeking in the range of 2% to 3%, [RBA governor] Michelle Bullock has been very consistent with her message around seeing some genuine stability there,” Andrews said. 

“With the main downward drivers being fuel and electricity concessions, perhaps they don't feel convinced enough that it is under control, with the likes of services and food inflation remaining elevated.”

Dan Gilbert (pictured above right), mortgage specialist at Australian Property Finance, said the RBSA decision was right as it would ensure “a more sustainable future for us all and provide better outcomes in the near future”.

“As much I would have loved to have seen a reduction today both professionally and personally – the same as every Australian with a mortgage  – I believe this is the right move to hold to ensure the rate of inflation continues to trend down as it has, going from over 8% last year to just under 3% today.”

Gilbert said the Reserve Bank’s decision was wise given Christmas would bring a period of increased spending.

“Whilst every mortgage holder is feeling the pinch, and a rate reduction is on everyone’s wish list, getting the timing right to future proof the economy will ultimately serve us well,” he said.

Andrews said today was always going to be about the language the RBA used around its decision, to “hopefully instil some confidence in the market that rate reductions are not that far away”. 

“I am in regular communication with my clients about this information and I do think they will take some comfort that we are on the right track,” Andrews said.

“But my message will remain the same to them  – we are certainly on the right track, but remain vigilant about your finances.”

Brokers on the whole believe a rate cut will not come until 2025.

“I believe a rate cut is most likely to occur at the end of the first quarter which gives time to get through the heights of the Christmas spending period and well on our way to maintaining low inflationary figures over the long term,” Gilbert said.

“Given the inflation rate has more than halved over the last 12 months, a rate reduction is no doubt on the way, which will be well received by all.”

Andrews said it would take “a lot of very compelling data” for the RBA to move in 2024, and that it was more likely to happen in 2025. “My gut feel is we will see this in the 2025 February announcement, rather than in 2024.”

Instead, he said he had already been noticing a shift towards a buyer’s market in the local property markets, which gave incredible opportunities to investors that had the capacity to invest.

“One of my favourite quotes for property investors, ‘When rates are high, it’s the time to buy’, has definitely come into play,” Gilbert said.