RBA Refuses to Cut Down the Cash Rate from 4.35%

For the past 12 months, the Reserve Bank of Australia (RBA) has maintained the interest rate consistently at 4.35 percent, citing high inflation as the reason behind it.

The RBA emphasises that it will cut rates only after the scenario changes, i.e., inflation declines substantially. It must reach a pre-set target range that is healthy for the economy.?

Reducing inflation is not only the board’s highest priority but also at the core of the RBA’s mandate to achieve price stability and enhance employment. So far, strategies devised to meet the set long-term inflation targets have been quite successful, and everyone expects the same in this case.

Latest Developments in this Regard

• The last hike in interest rates from 4.1% to 4.35 % was observed in 2023 in the Melbourne Cup Day monetary policy meeting. Since then, they have been the same and are expected to remain unchanged until the next meeting in February 2025.

• The data collected show that underlying inflation is higher than the Reserve Bank of Australia anticipates, suggesting that the borrowers need to be patient for any rate relief.

• While other Western countries like New Zealand and the US have begun lowering their cash rates, Australia maintains consistency, contributing to the higher employment fiscal.

• Latest Consumer Price Index data for the September quarter show that annual inflation has dropped into the RBA’s target band of 2-3 % (approximately 2.8 percent) compared to the 3.8 percent in the previous quarter.

• Though central banks have started cutting their fixed rates, this could lead to higher fixed rates than variable rates in the longer term. Therefore, the RBA will likely keep mortgage holders waiting for the cutdown until next year.

What do they say regarding Inflation?

?According to the Reserve Bank of Australia:

• The bank authority is firmly convinced that the underlying inflation manifests its growing momentum.

• The RBA also favours a restrictive policy until the Board becomes certain that inflation is steadily declining and heading towards the targeted range.

Going with the Board's Expectations

The latest data shows that inflation was 3.5% over the year to September, which aligns with forecasts but remains above the 2.5% midpoint of the RBA’s inflation target.

Finsure Group stated that

Brokers will be indispensable in guiding mortgagees when the RBA eventually decides to cut interest rates. However, the banks may find reasons not to pass on the reduction in full at that time, which could limit the benefit for borrowers struggling with current rates.

Important Forecast

The November SMP forecasts suggest it will take some time for inflation to come within the target range and approach the midpoint. Thus, everyone needs to be observant of potential inflation increases while not ruling out any risks, both in and out.

Concluding it All Up

The RBA remains committed to achieving its 2.5% inflation target, aiming for substantial progress by the second half of 2026. While holding rates steady may not relieve those burdened by high interest rates and living costs, the RBA has clarified that rates will stay elevated until they become sure that inflation is on track to meet this goal. Economists anticipate that the RBA may begin lowering rates in early 2025 if inflation seems under control. In that scenario, mortgage brokers will assist customers in navigating high rates and cost-of-living pressures. They will be instrumental in supporting mortgage holders and advising borrowers on options such as refinancing or improving loan terms in the future.

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