RBA cash rate: 4.1% rate pause continues

RBA cash rate: 4.1% rate pause continues

Incoming Reserve Bank of Australia (RBA) governor, Michele Bullock, gave homeowners a fourth consecutive, unchanged cash rate yesterday.

In a welcome gift for Australians, the new governor decided to hold onto the June rate of 4.1% - the highest such figure in 11 years - for another month.

Ms Bullock's quiet start to her new role comes after beginning her governership on September 18, following outgoing Dr Philip Lowe's departure.

The announcement also followed last week's Consumer Price Index (CPI) indicator data, which revealed inflation rose 5.2% in the 12 months to August 2023, according to the Australian Bureau of Statistics.

This figure is up from 4.9% in July and shows annual inflation remains below the peak of 8.4% in December 2022.

"Inflation passed its peak but still too high"

In a repeat of Dr Lowe's words first mentioned in May this year, Ms Bullock said that inflation is still too high - and will remain so for some time yet. 

Indeed, Ms Bullock showed little inclination to introduce any new words to her first Monetary Policy Decision press release, but rather, echoed Dr Lowe's September announcement.

She did highlight that goods price inflation had eased and fuel prices have risen.

But she repeated Dr Lowe's rather time-worn point from August that CPI inflation will continue to decline and only return to the RBA's magic 2-3% target range in late 2025.

Back to the future - or not?

The slight increase in the ABS' July figures - as well as a new governor - had some economists uncertain about today's RBA cash rate announcement.

Another big question being asked is whether we have reached the peak of the rate hike incline.

Even before yesterday's announcement, three of the Big 4 Banks - NAB being the only one on the outer - forecast that there would be no further hikes this year.

NAB, however, predicts another 0.25% hike next month, bringing the cash rate to 4.35%.

RateCity also highlighted that the CBA expects rates to drop to 3.1% by December 2024 with Westpac predicting a fall to 2.85% by August 2025.

ANZ meanwhile believes a drop to 3.35% by May 2025 may still happen.

RBA cash rate October announcement
Three of the Big 4 Banks forecast there will be no further RBA cash rate hikes this year.

"Rental pressures are front and centre"

CoreLogic research director, Tim Lawless, believes the RBA's November cash rate announcement will be "one to watch", particularly as the central bank continues to keep a close eye on the housing sector.

"Rental pressures are front and centre in the inflation numbers; however, the annual change in CoreLogic’s measure of market rents has been slowing since October last year," Mr Lawless explained.

"CPI rents tend to lag market rents, implying CPI rental growth could be close to peaking."

Mr Lawless said the national value upswing had lost steam in the past quarter.

But honing in capital city data, every city - bar Hobart - recorded capital gains in the September quarter, according to CoreLogic's monthly Home Value Index report yesterday.

Adelaide recorded the highest capital gains in the country (4.3%), followed by Brisbane at 3.9% and Perth at 3.6%.

But Mr Lawless advised that consumer confidence is unlikely to enjoy any kind of upswing - and this could directly impact the property market.

"With households continuing to face cost of living pressures, alongside the spectre of another rate hike, it’s unlikely consumer attitudes will show a material lift any time soon," he said.

"With housing market activity and sentiment highly correlated, it’s unlikely residential purchasing activity will show a material rise until some certainty returns to the economy."

The RBA's next monthly cash rate announcement will be on Tuesday, November 7, 2023, at 2.30pm AEDT.

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