The Reserve Bank (RBA) has maintained interest rates at their current level in August, to the relief of many mortgage holders.
Market expectations have shifted rapidly in recent weeks, with the latest quarterly inflation data calming fears of an immediate rate hike. Now, attention turns to when the RBA might begin lowering rates.
The RBA's primary goal is to control inflation while ensuring economic stability.
Despite inflation remaining above target, the RBA is striving for a “soft landing”—a gradual reduction in inflation that doesn’t compromise job growth.
“RBA wants to lower rates slowly as inflation adjusts downwards, so it settles nicely in the middle of the target band,” PropTrack’s Paul Ryan (pictured above) said.
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Inflation data influences rate expectations
Recent inflation measures have provided mixed signals, causing a shift in interest rate expectations.
While the May consumer price index (CPI) hinted at a possible rate hike, the more comprehensive June quarterly CPI data aligned with RBA forecasts, easing market concerns.
This shift has led to predictions of rate cuts as early as November this year.
Major banks, including Westpac and Commonwealth Bank, anticipate the RBA could lower rates even before inflation returns to the target range of 2% to 3%.
These forecasts suggest the first rate cut could come as soon as November, with additional cuts expected by mid-2024.
While the outlook for interest rates suggests relief for mortgage holders, the situation remains fluid.
The RBA's careful balancing act between inflation control and economic stability means that future rate changes will depend on how inflation evolves in the coming months.
“As it stands, mortgage holders may be in for relief in just a few short months,” Ryan said, leaving many hopeful for a decrease in borrowing costs.
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