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RBA holds cash rate again – when will we see interest rate cuts? - featured image
By Brett Warren

RBA holds cash rate again – when will we see interest rate cuts?

It looks like Governor Philip Lowe will be able to exit quietly as the Reserve Bank has again left the cash rate at 4.10 per cent, announcing a pause for the third meeting in a row and a fourth time this year.

A drop in retail spending, softer job numbers and weaker than expected wage growth saw the Reserve Bank hold off on a rate hike this month.

This pause is yet another indication that the steepest and fastest interest rate cycle on record has already peaked, however Governor Philip Lowe, in his last statement as Governor of the Board, noted some further tightening of monetary policy may be required.

Cash rate

Delivering his last rate decision as RBA governor, Philip Lowe said easing inflation and economic uncertainties were behind the decision to pause.

“Interest rates have been increased by four percentage points since May last year,” Dr Lowe said in a statement after the meeting.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so.”

But Dr Lowe has left the door open to further hikes in coming months, saying:.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.”

When can we expect cash rate cuts?

Incoming RBA Governor Michelle Bullock has noted she is hesitant to give any sort of guidance on how long interest rates would have to stay high, however, the economic teams from the big four banks are all predicting at least one cut next year, with the earliest forecasted cut from CBA in March 2024.

These forecasts were made before the September RBA announcement and may change in the next few days

Big four banks’ current cash rate forecasts:

Bank Cash rate peak First rate cut Total number of cuts forecast in 2024
CBA 4.10% Mar 2024 4
Westpac 4.10% Q3 2024 2
NAB 4.35% Aug 2024 4
ANZ 4.10% Nov 2024 1 research director Sally Tindall, said:

“All four big bank economic teams have cuts forecast in 2024, but the number and timing of these cuts vary significantly.”

CBA is predicting the first cut in March while ANZ believes the cash rate won’t move south until late 2024.

That’s a huge difference for anyone with a mortgage

A watched pot never boils. If you’ve got a mortgage, put your head down and come up with a budget that will withstand another rate hike, rather than a rate cut.

If and when a cut does finally come your way, you can be pleasantly surprised.

The RBA and the government can’t hand out widespread relief to borrowers at this stage.

If they do, they risk triggering another spike in inflation. If you need to inject relief into your budget, you’re going to have to be proactive about it.

Even if you’ve haggled or refinanced in the last 6 to 12 months, ask again. The banks are still in the mood to hand out discounts, particularly if they think you’ve got itchy feet,” she said.

Commentary by CoreLogic Research Director, Tim Lawless

Tim Lawless of Corelogic commented...

With inflation easing more rapidly than forecast, signs the labour market is loosening and a pullback in spending from households, the RBA’s decision to keep the cash rate on hold at 4.1% was widely anticipated.

This was the third month in a row where the RBA board kept the cash rate steady; with key economic indicators softening over recent months there is mounting speculation the rate hiking cycle peaked in June.

The RBA was clear that inflationary pressures, especially in the services sector, remain elevated, but the trend is heading in the right direction and the RBA remains confident inflation will return to the target range in late 2025.

The monthly Consumer Price Index (CPI) indicator showed a further easing in the headline inflation rate, recorded at 4.9% in the 12 months to July, down from 5.4% in the year to June and 8.2% over the 2022 calendar year.

CPI rents, which are allocated the second largest weighting within the CPI ‘basket’, remain a major inflationary driver, with the monthly CPI indicator reporting a 7.6% rise in the cost of rents in the year to July, accelerating from 7.3% in June.  The trend indicates no slowdown in growth for rents paid.

Although CoreLogic’s timelier rental index has recorded a fourth consecutive month of slowing rental growth, CPI rents show around an 18-month lag, suggesting rental prices are likely to add to inflationary pressures for some time yet.

It may be too soon for a pause in the cash rate to have a significant impact on purchasing demand.

Although housing values have trended higher in the past few months, the recovery trend is occurring across volume that remains slightly below the five-year average.

A more robust recovery in housing market activity is likely to be constrained by high interest rates and affordability hurdles in the short-term.

Additionally, consumer sentiment, which shows a close relationship with the volume of home sales, has held close to recessionary lows for almost a year.

A material rise in dwelling sales is unlikely until we see a lift in consumer spirits.

If we see a growing expectation that interest rates have peaked, alongside lower cost of living pressures, sentiment measures are likely to rise, but confidence has a long way to recover before getting back to a neutral setting.

A recent rise in new listings activity may also test buyer demand, and lead to milder growth in housing values, towards the end of 2023.

While a pause in the cash rate may gradually instil more confidence in the market, this is still very much an uncertain and thinly traded upswing.


What borrowers should do?

Rate City suggests that borrowers should concentrate on clearing another potential hike, rather than focusing on potential cuts that may or may not materialise next year.

One of the most effective ways to do this, is to refinance to a different lender, particularly for those who haven’t switched banks since the start of the hikes.

Alternatively, borrowers can haggle with their current lender to get a better rate, even if they’ve haggled or refinanced relatively recently.

According to the RateCity database, there are still three lenders offering variable rates under 5.50 per cent, while 33 lenders are offering variable rates under 5.75 per cent (excludes introductory rates).

If someone with a $500,000 debt switched to one of the lowest variable rates in the market they could potentially save $12,024 in the next two years, even after paying an estimated $1,150 in switch costs.

How much could you save by renegotiating your loan when compared to ‘do nothing’

Based on $500,000 debt with 25 years remaining - contact us for other loan sizes

Rate Drop in monthly repayments Savings - next 2 years
Do nothing 6.86% N/A N/A
Haggle to big 4 new customer rate 6.25% $182 $5,892
Refinance to a competitive rate 5.75% $329 $9,607

Source: Note: Big four bank average includes Westpac’s introductory rate. LVR requirements apply.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.
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