Flickering hopes of a pre-Christmas rate cut for Sydneysiders were dashed today as the RBA held the official cash rate at 4.35%, where it’s been on hold for the last year.
‘While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,’ said the Central Bank today
‘The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint.’
The RBA again reiterated that by 2026 the inflation rate is expected to be ‘sustainably’ in the 2-3% target band.
The Reserve Bank added that, ‘the Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts, but risks remain.
‘Recent data on inflation and economic conditions are still consistent with these forecasts, and the Board is gaining some confidence that inflation is moving sustainably towards target.’
So, after a year that began with confident predictions of a rate cut, the RBA’s cash rate remains unchanged as we move into 2025.
However, most industry experts are in consensus, believing that the rate will fall to around 3.35% by this time next year. And, as lenders start to reduce some of their rates, many market experts and banks are now forecasting a rate cut in the first half of 2025.
This expectation is supported by the November RBA board meeting minutes, which indicated that Martin Place wants to see more than one positive quarterly inflation report before committing to any rate cuts.
If inflation for the first quarter of 2025 continues to remain in the target range of 2–3%, the RBA could consider reducing the official cash rate in its meeting on May 20, 2025.
By that point, there will have been two sets of inflation reports as the RBA aims for ‘sustainable’ rates of inflation in this band.
Federal Treasurer Dr Jim Chalmers would dearly like to see a rate drop ahead of an election mid-next year. He’s been vocal in saying that continued elevated rates are ‘smashing the economy’.
To this point, ABS data shows in each of the past two years Australians have experienced the biggest one-year increase in average mortgage repayments, which have outstripped the pace of wage increases.
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Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!