The Reserve Bank of Australia (RBA) has maintained the status quo by holding the cash rate at 4.35% for the third time in a row following its two-day board meeting. This comes despite the latest inflation data coming in higher than expected, raising concerns about persistently high prices.
While the decision to maintain the cash rate might suggest a continued approach to stability, the RBA adopted its most hawkish stance yet since Michele Bullock took over the reins as RBA governor.
For borrowers, those holding out for a drop in interest rates might have to wait a little longer as cost-of-living pressures reach “extreme levels”, according to Finder’s Cost of Living Pressure Gauge.
"The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth," the RBA Board said in a statement. "The central forecasts, based on the assumption that the cash rate follows market expectations, are for inflation to return to the target range of 2–3% the second half of 2025, and to the midpoint in 2026."
"Returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment."
"The Board needs to be confident that inflation is moving sustainably towards the target range. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case."
With nearly all experts predicting the rate pause, mortgage brokers Will Frazer and Sadish Visvalingham were not surprised by the RBA’s decision to hold the cash rate.
"“It seems aligned with current economic conditions, and most analysts anticipated that stability might be the course of action for now,” said Visvalingham (pictured above left), founder of Premier Financial Advocates.
"Keeping the rate unchanged should provide a bit of relief to borrowers, particularly those with variable rate mortgages, as it keeps their payments stable for now. This stability is important and could help improve consumer sentiment, even though we're still navigating some tough economic waters due to persistent inflation."
However, Frazer (pictured above right), director of OurLoan Finance Brokers, lamented that economists have “advised the nation different information” throughout the last couple of months.
“Rates should be on hold until later this year, where we will hopefully start to see decreases,” said Frazer, who is potentially one of Australia’s youngest mortgage brokers.
“Unfortunately, the media is now predicating the possibility of a ‘hawkish’ stance from the RBA once again. This shows to be quite alarming due to the fact that the CPI data released on April 24 revealed that inflation has continued to ease annually.”
The comments come after Westpac and Commonwealth Bank recently revised their cash rate forecasts, with both not expecting the RBA to cut rates until November.
Others like Judo Bank’s Warren Hogan had even predicted the cash rate to climb to 5.10% by Christmas.
This followed the CPI rising 1% in the March quarter, higher than the 0.6% rise in the December 2023 quarter.
“I strongly believe that if rates were to continuously increase, borrowers would fall into hardship or arrears and have the risk of more downsizers, moving to more affordable suburbs or even homelessness having a possibility,” Frazer said.
Until recently, the conventional wisdom among economists was that interest rates would drop sometime this year. This led to many borrowers weighing the costs and benefits of borrowing money
After returning from his inspiring journey to Mount Everest, Visvalingham found many prospective buyers were taking a cautious stance.
“They're watching the market closely, hoping for a rate cut before making significant financial commitments like buying a home,” he said. “This is understandable, given the speculations that we might see some rate adjustments by the RBA later next year.”
However, Frazer said he has found that borrowers are still searching for property, especially investors.
He said this was due to high rental prices currently across Australia; where people are starting to take advantage of this to “essentially buy into the crisis”.
“Data has shown that there are extremely high yielded suburbs and growth within certain areas,” Frazer said. “For example, Perth has had a 9.7% growth in their market in the previous 12 months, where the median price for a house is now at a high of $965,000 and rent being at a median of $750 per week with a 11.9% of growth within the last 12 months.”
“Many investors are now starting to purchase here due to this effect in the market.”
For owner-occupiers, Frazer said he is still noticing borrowers still wanting to buy whilst rates are still high, “solely to the fact that they would rather pay their own mortgage, rather than paying someone else’s if they were to rent”.
“Many Millennial and Gen Z borrowers are wanting to get their foot into the market, rather than wait with the possibility that it will eventually become unaffordable to live in certain suburbs.”
The Reserve Bank's decision to hold interest rates steady lately has been a welcome break for borrowers. However, with predictions about future rate changes becoming less certain, many are wondering if this pause in rate hikes will last.
Visvalingham said pause could indeed become a norm this year, as the economic outlook remains filled with uncertainties.
“Most economists, including myself, are looking at a possible start to rate cuts in the second half of 2024, provided the inflation continues to ease and economic conditions begin to stabilize,” he said.
“This forecast aligns with several economic predictions suggesting that while immediate changes are unlikely, there is a potential for easing in the near future."
While Frazer believes the same, he admitted he can only take educated guesses and assumptions based on the data.
“The only way for us (Australians) to know is by continuing to read the data in which we are being presented with from the Australian Bureau of Statistics (ABS),” he said.
