As was broadly expected, the Reserve Bank of Australia (RBA) has left the cash rate target unchanged at 4.35%. This means that we won’t be expecting further rate movements until 6 February 2024 at the earliest. This is if the RBA decides to change the rate on the day.
We recall that the RBA increased interest rates by 25 basis points last month, a decision that reflects the Board’s view that the progress in bringing inflation back to the target range of 2-3% was looking slower than earlier forecast.
In keeping the cash rate steady for December 2023, the Board states that it will take the time to assess the impact of the increases in interest rates on demand (in the economy), inflation and the labour market.
There are two key takeaways from Governor Bullock’s statement.
1. Monetary Policy: “Higher interest rates are working”
The RBA is clear in stating that ‘higher interest rates are working’ – to establish a more sustainable balance between aggregate supply and demand in the economy. The central bank is also confident that the impact of the more recent rate rises will continue to flow through to the economy, but stresses again that high inflation weighs on people’s real incomes and weakens household consumption and dwelling investment.
2. “Significant uncertainties” around the outlook
The second takeaway from the statement: the decision has not been a straight forward and new data and the evolving assessment of risks will shape the next rate decision in February 2024.
From the “significant uncertainties” cited around the outlook, we can get some insight into where rates might be headed next as new data comes in:
a) whether services inflation is moderating, like goods inflation has been
b) the Chinese economy and the implications of the conflicts abroad
c) the lags in the effect of monetary policy and how firms’ pricing decisions and wages will response to the slower growth in the economy when the labour market remains tight
d) household consumption – while many households are experiencing a squeeze on their finances, some are benefiting from rising house prices, substantial savings buffers and higher income income.
There will always be winners and losers in any monetary policy decision. To mortgage holders, yesterday’s rate hold decision is obviously a welcome move ahead of the Christmas season.
If you are a mortgage holder still on fixed rates but which are expiring in the near future, we encourage you to get in touch with us.
Speak to a broker
Contact us if you would like to speak to an experienced broker about your upcoming fixed rate expiry. If you are already on higher interest payments and would like to negotiate onto a lower rate, please also feel free to get in touch with us and we will do our best to help you.