Reserve Bank makes December interest rate call

Mortgage industry welcomes decision

Reserve Bank makes December interest rate call

Australia’s official cash rate will stay at 4.35%, following the Reserve Bank of Australia’s December board meeting today.

Many experts in the mortgage and finance industry had predicted the cash rate would remain steady following November’s RBA meeting which authorised an increase of 25 basis points.

On Tuesday afternoon of December 5, RBA governor Michele Bullock, who chose to hold the interest rate at her first board meeting in October, before increasing it in November, elected to leave the cash rate unchanged this month.

According to Bullock, who became governor on September 18, this decision reflected the board’s view that progress in bringing inflation back to the target range of 2 to 3 per cent was looking slower than earlier forecast.

“While the economy has been experiencing a period of below-trend growth, it was stronger than expected over the first half of the year,” Bullock said.

“Underlying inflation was higher than expected at the time of the August forecasts, including across a broad range of services.

“Conditions in the labour market had eased but remained tight. Housing prices were continuing to rise across the country as was the number of new mortgages. Given this, the board judged that the risk of inflation remaining higher for longer had risen and an increase in interest rates was therefore warranted to be more assured that inflation would return to target in a reasonable timeframe.”

Bullock said whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.

“In making its decisions, the board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

Reserve Bank interest rate decision brings relief

Mortgage Choice CEO Anthony Waldron (pictured above left) said Australians would be relieved at the Reserve Bank’s call to leave the cash rate unchanged at its final monetary policy meeting for 2023.

“Hopefully this gives households some much-needed breathing room before the expensive holiday season,” Waldron said.

The latest data from the Australian Bureau of Statistics showed that while CPI inflation rose 4.9% in the 12 months to October 2023, this is down from 5.6% in September and below the peak of 8.4% in December 2022.

“Despite the easing in inflationary pressure, the RBA Board was clear in the minutes of its November meeting that further rate rises are not off the cards,” Waldron said.

“By the next monetary policy meeting in February 2024, the RBA will have the December quarter CPI data to assess, so I'd be hesitant to breathe a sigh of relief just yet.”

RBA cash rate decision means borrowers should review loans

According to Waldron, Mortgage Choice home loan submission data showed a 3% uplift in purchase activity during November, as borrowers make moves on their new year homeownership plans in the last month of the spring selling season.

The data also revealed a 4% drop off in the proportion of refinances in November.

The same data showed that 97% of loans submitted by Mortgage Choice brokers were for variable rate home loan products, and only 3% of loans had a fixed component.

“As 2023 comes to a close, I’d encourage borrowers to review their home loan to ensure its still competitive,” Waldron said. “And, if you’re planning to buy your first home or upgrade in 2024, this is a great time to set the wheels in motion for your home loan application.”

“Your broker can help you understand your borrowing power and the home loan options available to you.”

Borrowers early Christmas gift from RBA

LMG executive chairman Sam White (pictured above right) said today’s decision gave borrowers a welcome reprieve leading into Christmas.

“Its an early Christmas present, albeit its hard to know how next year will start,” White said. “There is still lots of uncertainty.” 

“With the RBA Board not meeting again until February, we have a window of stability that will hopefully extend into 2024, giving borrowers improved confidence in their decision-making.”

White said annual CPI was heading in the right direction and the RBA wanted to track its progress before changing the cash rate.

While the RBA retained the 4.35% cash rate today, brokers can expect to have a busy first half of 2024, especially in post-settlement care. This year, refinancing accounted for 59% of LMG brokers’ activity; before COVID, it was 38%.

At our Growth Summit, last week, NAB Group CEO Ross McEwan said it’ll take six to nine months for the last of the borrowers who purchased during the ultra-low-cash rate environment to roll off their fixed-interest rate periods.

Brokers can expect more of the same to start off 2024 and will continue to do what brokers do best –  act in the best interests of their clients to help them navigate these challenging and uncertain environments.”

Senior PropTrack economist Eleanor Creagh (pictured above centre) said the decision by the Reserve Bank to hold the cash rate steady in December would maintain both buyer and seller confidence.

“Conditions are expected to continue to soften as the full impact of monetary tightening to date is yet to be felt and inflation is likely to continue moving lower as a result,” Creagh said.

“The RBA has been clear that it has a low tolerance for allowing inflation to return to target more slowly than currently expected.

“This means it’s likely the cash rate has peaked in this current tightening cycle, although should inflation data indicate inflation is returning to target at a slower pace than currently expected the risk of another lift in February 2024 remains.”

Property prices defy expectations

Creagh said the PropTrack Home Price Index showed that property prices had defied expectations and home values remained resilient to higher interest rates this year.

“This continued in November, which marked the eleventh consecutive month of national home price growth, meaning prices have grown every month of this year.

“The decision by the Reserve Bank to hold the cash rate steady in December will maintain both buyer and seller confidence.

“Looking ahead, interest rates are either at, or very close to, their peak. The outlook for the economy is weaker, however, population growth is set to remain strong.

“Together with a shortage of new home builds and challenging conditions in the rental market, prices are expected to continue rising, though the pace of growth will continue to slow.”

Do you think Australia’s unlikely to escape another cash rate early next year? Share your thoughts below.