Last week the Reserve Bank handed down some news that would affect mortgage brokers and borrowers nationwide.
From changes to the RBA board's meeting frequency, more press conferences, and five-year reviews, to the appointment of a new governor and several vacant positions left to fill, these decisions potentially have far-reaching effects on the economy.
The decision to name deputy governor Michele Bullock as the new Reserve Bank governor will soon bring Philip Lowe’s turbulent seven-year reign – a tenure that oversaw his quantitative easing policy, which injected money into the economy and reduced the cash rate down to record lows during the pandemic, and its subsequent rise, increasing 400 basis points in just 13 months.
But perhaps what he will be most remembered for is bringing the RBA into the mainstream – where talk about monetary policy is as familiar for punters having a beer at the pub as it is in the RBA boardroom.
Now the stage is set for a new era. But will it bring an easing to the recent rate increases or is there more pain ahead?
Much has been said about Bullock’s new role that will start on September 18.
Speaking to ABC Radio, Finance Minister Katy Gallagher said the incoming Reserve Bank governor was expected to bring a “reform agenda” to the institution.
Sharon Farrar (pictured above left), an NSW-based Mortgage Express broker, backed Bullock in to do a great job but said while she may be responsible for leading and implementing changes to policy, the driver of what lies ahead would ultimately be up to the RBA board.
“Sure, Michele has a tough job ahead of her for the next six to 12 months but I’m sure she’s up for the job,” Farrar said.
Raj Ladher (pictured above right), a mortgage broker at Equilibria Finance, also congratulated Bullock on her historic appointment as the Reserve Bank’s first female governor since it launched in 1959.
But while Ladher admitted that Bullock was “very experienced” and may have plans for reform, he did not believe the appointment would make a “significant difference” to the role of the RBA in the economy.
“Michele has also worked at the central bank for nearly 40 years so I would imagine the bank’s DNA is engrained in her,” Ladher said.
Before the new governor was officially announced last Friday, Lowe announced a host of changes would be implemented following a government review.
These include that the RBA board will meet eight times a year rather than 11, that Bullock will hold a press conference after each meeting explaining the board’s decisions, and that the RBA’s framework will be reviewed every five years.
Ladher said Bullock was “well-placed” to implement these changes, but the decision to reduce board meetings “could go either way” in terms of future rate rises.
“The reasoning of the reduced meetings is to give time to any rate change decision and track its impact – good or bad. This however could mean that there could be higher increments to interest rates higher or lower,” Ladher said.
“This will give borrowers some security of rates holding for two more months out of the year which allows them to budget slightly more than the current 11 meetings.”
Farrar agreed, saying the timing of the meetings could allow for the RBA to base its decision on more data.
“From what I have read four of the meetings will be on the first Tuesday of February, May, August and November. The other four meetings will be held midway between those meetings,” Farrar said.
“I’m hoping for a positive impact because the midway meetings may now align with the release of other important data such as cost of living and unemployment figures that effect the economy and impact interest rate decisions.”
Ladher said he did not believe Bullock’s recommendations would result in “fundamental change” to the RBA’s policy but said it may change the methodology on how the RBA reached its decisions on setting interest rates.
“One of the main recommendations from the review was to include recommendations and feedback from experts outside the bank prior to making a rate decision,” Ladher said.
With many borrowers experiencing mortgage stress, the question many people are asking is if the RBA will continue its hawkish approach to curb inflation and raise rates.
While the major banks are indicating more rate hikes in the near future before declining next year, Ladher said the situation was a “moving beast” and he didn’t believe anyone could say what’s coming next with great certainty.
‘If we go off commentary from the RBA along with what chief economists of the major banks are predicting, there will be another one to two rate rises at 0.25% each, peaking the cash rate at 4.35% to 4.60%,” Ladher said.
“With inflation being one of the main measures on setting the cash rate and still above the target or 2% to 3%, further rate rises do seem likely unfortunately.”
Farrar relayed what she often told her clients when they asked about rate rises.
“My crystal ball is a bit blurry at the moment. I am still positioning them that there could be another increase if the next release of inflation figures haven’t seen a further slowing of the economy,” Farrar said.
“If they have then we should enter a period of rate stability before a decrease – fingers crossed – by late next year.”
