Real Estate

Unchanged cash rate the perfect Christmas gift for homeowners

Unchanged cash rate the perfect Christmas gift for homeowners

The Reserve Bank of Australia (RBA)'s decision to leave the cash rate unchanged is a very merry Christmas gift for Aussie homeowners.

Yesterday's decision - the last for 2023 - also gives homeowners an extra month of relief, with the November cash rate of 4.35% securely wrapped up until February 2024, when the RBA Board reconvenes again.

Next year will also see the start of the RBA's new schedule of eight, rather than 11, meetings a year.

Amidst cost-of-living pressures and the usual Christmas expenses, the rate reprieve was sorely needed particularly following last month's 0.25% increase.

The RBA's November increase decision - the first in four months - brought the cash rate to its highest point since November 2011.

It also followed four other 0.25% hikes in February, March, May and June, and a total of eight hikes in 2022 - amounting to 4.25% of increases in two years.

Thank lower inflation for unchanged rate

Homeowners can thank a lower-than-expected inflation rate for the RBA's unchanged decision yesterday.

The latest Monthly Consumer Price Index Indicator from the Australian Bureau of Statistics (ABS) noted that inflation dropped to 4.9% in the 12 months to October - compared to 5.6% in September.

This figure was a strong deceleration from the inflation peak of 8.4% in December 2022 and was also the lowest figure since July.

The most significant price rises were in electricity (10.1%); gas and other household fuels (13%); petrol (8.6%); and insurance and financial services (8.6%).

Financial experts quickly pointed to these figures as an excellent reason why homeowners shouldn't fear yesterday's RBA announcement.

On the release of the CPI data, Betashares chief economist David Bassanese told The Australian that the sharper fall in inflation ruled out the risk of the RBA delivering a Christmas rate rise.

“In the space of two days, we’ve received reassuring news that both consumer spending and inflation continue to ease, which should obviate the need for the RBA to dampen Christmas cheer with another rate increase next week,” he said.

However, CoreLogic head of research Eliza Owen told Mortgage Business that the monthly CPI measure may not have affected yesterday's RBA decision.

"That’s because October CPI was impacted by various subsidies, including the increase to the Commonwealth Rental Assistance, and excluded some services where inflation is more persistent," Ms Owen said.

"This gave a less clear read on inflationary pressures."

RBA December decision
The RBA’s decision to leave the cash rate unchanged is a very merry Christmas gift for Aussie homeowners.

Repeated words repeated again

RBA governor Michele Bullock's cash rate announcement yesterday was, as usual, highly similar to those she - and former governor, Dr Philip Lowe - produce every month.

Of the latest CPI figures, she commented that they suggested inflation was continuing to moderate, driven by the goods sector.

However, she added that they did not provide much information on services inflation.

"Overall, measures of inflation expectations remain consistent with the inflation target," Ms Bullock said.

In another repeat of earlier announcements, Ms Bullock said she believed holding the cash rate steady now would give the central bank extra time to assess the impact of rate increases on demand, inflation and the labour market.

Ms Bullock also repeated her already oft-repeated words that there are significant uncertainties around the outlook.

And, that the Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

Heat comes out of property market

The latest CPI figures show both rent prices and sales price increases are slowing, backing up CoreLogic's November Home Value Index report that the property market is cooling down.

According to the CPI details, rent price inclines dropped to 6.6% in the 12 months to October - down from 7.6% in the 12 months to September - although admittedly, this was due to the remaining impact of the changes to Commonwealth Rent Assistance.

Meanwhile, new dwelling prices declined to 4.7% in the 12 months to October, following 4.9% and 4.8% figures in September and August respectively.

As the ABS highlighted, the easing rate of price growth since last year reflects improvements in the supply of materials and subdued new demand.

Will Christmas gift be present in New Year?

With the final cash rate decision now announced along with the latest CPI figures, economists are looking ahead to what the RBA's next announcement could mean for homeowners.

Or, in other words, have we seen the last of the cash rate rises - or not?

And where will inflation figures go - up or down?

Even before the central bank's announcement yesterday, all of the Big 4 Banks were predicting a cash rate pause, based largely on the CPI figures.

The CBA, Westpac and ANZ also believe the cash rate has now peaked with only NAB forecasting just one more increase early in 2024.

Mr Bassanese added that a lot depends on whether the fourth quarter CPI data features a service sector inflation - with such an inflation being "surprisingly persistent". 

If it does, rates may rise again in February, he said, "with the very real intention to slow consumer spending further and dent the still strong pricing power enjoyed by corporate Australia.” research director Sally Tindall also warned Australians not to let their budget "go rogue" this summer as a prolonged spell of elevated spending could see the RBA lift rates again.

The RBA’s next monthly cash rate announcement - the first for 2024 - will be on Tuesday, February 6 at 2.30pm AEDT. Eight meetings  - rather than 11 meetings - will now be held every year in February, March, May, June, August, September, November and December.

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