Reserve Bank of Australia reveals October interest rate

Industry reacts to Michele Bullock's decision

Reserve Bank of Australia reveals October interest rate

Australia’s official cash rate remains unchanged for the fourth consecutive month at 4.10%, after the Reserve Bank board decided interest rates didn’t need to be increased. 

While many in the mortgage and finance industry were not surprised by the cash rate pause, some predict a rise will come before the end of 2024.

On Tuesday afternoon, RBA’s new governor Michele Bullock chose not to react to last week’s small rise in inflation.

According to Bullock (pictured below) the RBA board decided to leave the cash rate target unchanged at 4.10% and the interest rate paid on exchange settlement balances unchanged at 4%.

Michele Bullock

“Interest rates have been increased by 4 percentage points since May last year,” Bullock said.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so.

“In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month.”

Bullock said the cash rate pause will provide further time to assess the impact of the past run of interest rate rises and the economic outlook.

Pause positive for brokers, borrowers, yet still plenty of hardship

The CEO of Lendi Group, David Hyman (pictured above left), welcomed the decision from the RBA to keep interest rates on hold which he said reflected the current economic conditions, with inflation falling 3.2% since December.

“The news will come as a relief to the countless Australian homeowners who fear another hike in their mortgage payments,” Hyman said.

“Despite the pause, we are still expecting a high level of stress to emerge in the market, particularly as we near the end of the year.”

According to Hyman, the Lendi Group is seeing the worst mortgage pain in NSW, Queensland and Victoria where close to 30% of homeowners, who remain on fixed rates in the 2% range, will be rolling onto much higher revert rates by December this year.

Redzed’s Calvin Cordle (pictured above centre) said this fourth consecutive hold decision will be warmly welcomed by homeowners who have been impacted by sustained rate hikes, and those coming off fixed rates.

“Mortgage holders should also be encouraged by indications that home values continue to rise nationally,” Cordle said.

“Hopefully this period of stability is a sign that the tightening cycle is nearing its end, and that a drop in cash rate is not too far away.”

Rate rise not needed, economy tacking as expected

PropTrack director of economic research Cameron Kusher said the economy appeared to be shifting in line with the RBA's expectations.

“Although the monthly CPI indicator was slightly higher year on year in August, I don't believe inflation was strong enough to necessitate a change to the cash rate,” Kusher said.

Bendigo Bank chief economist David Robertson said the uptick for inflation in the monthly data wouldn’t be enough to prevent another RBA pause in October for official rates, but November would be a closer call.

“Rates remain on a higher for longer path as core-services inflation persists,” he said.

Impact of previous rate-rise run not evident till 2024

HIA chief economist Tim Reardon said it would take some time for inflation to get under 3%.

“The elevated volume of building activity on the ground continues to obscure the adverse impact that rise in the cash rate has had on the economy,” Reardon said. “The full impact of the rate rising cycle will become apparent in 2024.”

Economic indicators confidence boosts for RBA board

CreditorWatch chief economist Anneke Thompson (pictured above right) said continued weak retail trade and consumer confidence data gave the board the clear sign that their efforts to reduce demand in the economy had worked very well.

“While some items in the CPI ‘basket’ continue to record price rises, these rises are by and large not related to high consumer demand, and therefore not enough to convince the RBA to move again to cool demand further,” Thompson said.

Ahead of the rate rise announcement, ANZ senior economist Adelaide Timbrell said while the latest monthly CPI indicator for August posed some risk to ANZ research’s forecast for Q3 inflation, “we don’t think the upward surprise was enough to convince the RBA to increase the cash rate in October”.

Timbrell said anyone with a mortgage should plan for at least one more rate rise, “because if inflation doesn’t behave, we could end up with another hike before Christmas”.

Home values still growing following rate rise pauses

Data released on October 2 from CoreLogic’s national Home Value Index (HVI) showed a 0.8% rise in September as the recovery trend moved through an eighth consecutive month of growth.

CoreLogic’s research director Tim Lawless said at the current rate of growth, “we are likely to see the national HVI recover to a new nominal high by the end of November”.

“We have already seen dwelling values reach new record highs in Perth and Adelaide,” Lawless said. 

“Brisbane looks set to reach a new record high in October, with home values currently only 0.6% below their previous peak.  

“Hobart and Canberra have the furthest to go before staging a nominal recovery, with dwelling values remaining 12.4% and 7.0% below their cyclical highs from last year.”

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