RBA Rates Announcement May 2024

07.05.24 | Marc Barlow | News

The official cash rate was kept at 4.35%, the RBA announced today, though inflation worries have flared once again.

With inflation reducing at a slower than expected rate, most market analysts tipped a pause today.

And while this pause is still good news for Melbournian home mortgage borrowers, hopes have seemingly been dashed for a long-awaited rate cut in the next few months.

The reason being that ABS data in late April showed the consumer price index (CPI) rose in the first quarter of 2024, and it was above market forecasts.

The RBA today said that ‘recent information indicates that inflation continues to moderate, but is declining more slowly than expected’.

‘More slowly’ is the key phrase here, with frustration that inflation isn’t dropping at the same pace as late 2023.
Today’s decision marks six months without a change in the official cash rate.

The RBA added that the economic outlook remains ‘uncertain’ and recent data demonstrated that ‘the process of returning inflation to target is unlikely to be smooth.’

Which opens the door for a rate hike in 2024 – if it’s needed.

Other than inflation, retail sales figures remain a concern, and the unemployment rate – which edged up to 3.8% in March but remained below the forecasted 3.9%, with 6,600 jobs lost – was also weighed by the RBA today.

While a small number of experts aren’t ruling out a rate increase this year, encouragingly, almost all analysts are in sync with the Big Four banks and are leaning towards a potential rate reduction in late 2024.

If so, this will be a huge relief as March 2024 data shows 1.53 million Aussie mortgage holders were at risk of mortgage stress.
Though history shows it is notoriously difficult to forecast economic conditions, and, therefore, rates. For example, a year ago, market forecasts had the cash rate at 3.35% by now, significantly lower than its current 4.35%.

Let’s not forget, too, that the RBA’s target range for inflation is 2–3%, so there’s still work to be ddone,and that may include a rate rise, as alluded to by former RBA governor Phillip Lowe in recent weeks.

‘Returning inflation to target within a reasonable timeframe remains the Board’s highest priority,’ added the RBA.
Interestingly, Macquarie Bank, Australia’s fifth-largest lender behind the Big Four, has cut its standard variable home loan rates for new owner-occupiers.

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