The RBA held the official cash rate at 4.35% today, though some analysts are predicting a large drop by Christmas amid concerns over the US economy.
Following last week’s Australian CPI figures, the Central Bank delivered another pause for home loan mortgage holders, though it noted today that inflation was ‘persistent’ and ‘above target’.
‘In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters,’ said the RBA today.
‘Quarterly underlying CPI inflation has fallen very little over the past year … policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.’
So, what direction will rates go?
If you want an optimistic take, The Age newspaper predicts that home buyers could benefit from a hefty interest rate cut before Christmas, aimed at protecting the domestic economy from a possible US-led recession.
It reports that markets expect the RBA to lower the cash rate to 4.1% by the festive season, with a 40% probability of a ‘super-sized’ half-percentage point reduction.
Other experts, however, still believe the rate is too low and needs to be ramped up one more time to hammer down the last vestiges of a stubborn inflation rate.
What we do know is that today’s decision was largely influenced by quarterly data released last week.
These numbers showed that inflation remains a challenge (though not enough for a rate rise right now). It was slightly above the official forecast, but not as bad as some predicted, while the trimmed mean inflation dropped to 3.9% in June from 4% in March.
Despite today’s steady-as-she-goes news, inflation isn’t dropping as fast as many, including the RBA, would like.
Of course, rate hikes over the last 27 months have impacted household budgets, with some critics arguing that these may have been excessive, raising concerns about a potential economic downturn.
Since May 2022, monthly repayments for some households have risen by almost $2000.
In fact, research from the RBA’s own economists indicates that approximately one in 40 owner-occupiers with loan-to-value ratios above 80% were more than 90 days behind on their mortgage as of May.
‘Globally, financial markets have been volatile of late,’ added the RBA, ‘and the Australian dollar has depreciated. Geopolitical uncertainties remain elevated.’
The RBA forecast is for inflation to return to the target range of 2–3% ‘late in 2025 and approach the midpoint in 2026’, noted today’s statement.
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Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!