Borrowers may have to wait longer for interest rate relief

Markets push back estimates on RBA rate cut

Borrowers may have to wait longer for interest rate relief

Borrowers who were hoping for relief from high interest rates may have to wait longer, as impending inflation data is set to provide clues to the Reserve Bank regarding the possibility of rate cuts.

Money markets have recently pushed back the expected timing of an interest rate easing, with the official cash rate now anticipated to remain at 4.35% until the central bank's September meeting, according to a report by The Australian. Previously, markets were fully priced for a rate cut to 4.1% in June.

Treasurer downplays inflation concerns

Federal Treasurer Jim Chalmers has downplayed fears that updated monthly inflation numbers for November, to be released on Wednesday, would dash hopes of earlier relief for household borrowers, The Australian reported.

“These monthly rates can be volatile – that’s why we don’t get carried away in either direction,” Chalmers told reporters. “What we already know is that inflation has come off substantially since its quarterly peak before the 2022 election and since its annual peak around this time last year.”

RBA's inflation target and forecasts

The Reserve Bank of Australia has an inflation target range of 2% to 3%. According to consensus forecasts, Australia's headline inflation rate is expected to have decelerated to 4.5% in the year to November, down from 4.9% in October, The Australian reported.

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The RBA typically prefers to wait for quarterly inflation readings, with fresh data for the three months to December scheduled for release on Jan. 31. The RBA's next interest rate decision is set for Feb. 6, and it is widely expected to keep rates on hold, as it did last month.

Possibility of rate hike

While it is anticipated that the RBA will keep rates unchanged, a surprise outcome in the inflation data could prompt the central bank to defy market expectations and consider a rate hike, according to The Australian. Rising services inflation and strong domestic demand may be factors that would lead to higher interest rates.

Wage growth and inflation adjustments

Treasury analysis shows that aggregate wages growth in Australia was 4% in the year to September, the fastest rate since 2009, The Australian reported.

However, when adjusted for inflation, workers experienced a decrease in real wages as prices grew by 5.4% over the same period.

Global inflation

Price pressures in Australia have continued to exceed those in many other advanced economies, The Australian reported.

In the United States, headline inflation has eased to 3.1%, while the United Kingdom, Canada, and Europe have recorded inflation rates of 3.9%, 3.1%, and 2.9%, respectively.

Despite easing inflation pressures in some countries, investors are increasingly concerned that central banks may not cut rates as aggressively as previously anticipated.

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