Tim Lawless (pictured above), research director at CoreLogic Asia Pacific, discussed the Reserve Bank’s recent decision to keep the cash rate at 4.35%, in line with economic forecasts, noting that a rate cut is anticipated, though its timing depends on future inflation trends.
“The decision to keep the cash rate on hold at 4.35% came as no surprise, with most economists agreeing the next move on rates will be down, although the timing of an RBA rate cut remains uncertain and dependent on inflation outcomes,” Lawless said.
The steadiness in rates, combined with a decline in inflation, is poised to bolster consumer sentiment further. This boost is crucial, as consumer confidence historically correlates with home sales volume.
“Following the 6.2% rise in the February consumer sentiment reading from Westpac and the Melbourne Institute, a further lift in confidence could be accompanied by a rise in home purchasing,” Lawless said. “This could add to housing demand that has already remained quite resilient despite the higher interest rate environment and cost of living pressures.
While headline inflation has seen a more rapid decline than expected, the persistence of high services inflation, particularly in housing-related costs, remains a concern for RBA.
Headline inflation dropped faster than expected from a 7.8% peak at 2022's end to 4.1% annually, with the latest quarter at 0.6%, the lowest since March 2020. Yet, services inflation remains high due to a tight labour market and rising costs in insurance, financial services, housing, and utilities.
“RBA expects services inflation to decline only gradually, making the timing for a rate cut highly uncertain and dependent on further progress in reducing inflation emanating from the services sector,” Lawless said.
Despite higher interest rates, the housing market has shown remarkable resilience, with values climbing in many regions. This trend is supported by a sustained imbalance between supply and demand, further evidenced by recent accelerations in home value growth and improved auction clearance rates across major cities, Lawless said.
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