Brokers prepare for RBA to lift cash rate

Mortgage-holders need to prepare for the likelihood that the Reserve Bank of Australia could lift interest rates when it holds its board meeting on August 6.

More economists, banks and mortgage brokers now believe that the RBA will have little choice but to lift the official cash rate next month.

The RBA itself has made it clear to the market that it won’t hesitate to lift the official cash rate, which has stood at 4.35% since November 2023, if inflation remains stubbornly outside of its 2% to 3% preferred range.

Alarming inflation numbers

While the Reserve Bank held steady in June, keeping the OCR at 4.35%,  the latest monthly inflation figures showed the consumer price index rising 4% in the 12 months to May 2024.

This was up from 3.6% in April, according to the Australian Bureau of Statistics, with the biggest contributors to the May increase being housing (+5.2%), food and non-alcoholic beverages (+3.3%), transport (+4.9 %), and alcohol and tobacco (+6.7%).

The RBA will be relying on the June quarter CPI figures, which will be released by the ABS on July 31, to provide a more accurate picture of inflation and inform its August decision.

But in releasing the full minutes of the board June 17 to 18 meeting, the RBA showed how close it came to pulling the ‘up’ lever.

“Raising the cash rate at this meeting could be appropriate if members formed the view that policy settings were not sufficiently restrictive to return inflation to target within a reasonable timeframe,” the minutes stated.

“This could be the case if it was judged that inflation was returning to target more slowly than previously assumed or that the gap between aggregate demand and aggregate supply was not closing quickly enough.”

Judo Bank chief economic adviser Warren Hogan has publicly stated that he believes the Reserve Bank will lift the cash rate in August and September due to bad inflation numbers, while NAB and ANZ have also pushed their predictions for cash rate cuts out to May 2025 and February 2025 respectively. ANZ also acknowledged a rate hike in August was a possibility.

So what do mortgage brokers think the RBA will do in August?

MPA sought the views of Greenline Home Loans founder and director Thaer Burbar (pictured above left) and Home Loan Experts CEO Alan Hemmings (pictured above right).

Brokers share views on cash rate increase

Burbar leads a team of five brokers looking after residential, commercial and asset finance customers.

He said the information coming out on inflation and interest rates had been unpredictable and therefore unreliable.

“If we had this conversation two months ago we both would have agreed that it [interest rates] was going down because I think at that stage inflation was looking a bit better,” Burbar said. “Whereas now we’re saying it definitely is not going down, and it’s either going to stay on hold or go up.”

Burbar said it looked like the RBA would lift the cash rate at its August meeting unless there was a big change in the quarterly figures, which are due to come out on July 31.

“The RBA has already pushed up the rate 13 times but inflation got to 7% or higher back then, so we are at a better place than we used to be but it’s taking a bit longer to get inflation down,” he said.

While Burbar said the monthly inflation change didn’t warrant the RBA pushing up interest rates, he acknowledged the views of some economists and banks and the central bank itself that the next move would be up .

Hemmings said in the last two months he had firmly believed that the next rate move would be up and “unfortunately I haven’t changed that opinion.”

“Everyone will be watching with interest what inflation does in July, before the RBA meets in August,” said Hemmings.  “I think if it hasn’t moved down in any way shape or form and has in fact gone up again, I don’t think the RBA has any other choice other than increasing the rate again.”

Hemmings said even if the RBA left the rates on hold, he couldn’t see the board cutting rates until mid-2025 at the earliest.

“Inflation is really stubborn at the moment and part of that is because it’s on things we all need – it’s a roof over our head in terms of rent, it’s food, it’s petrol, it’s energy, it’s essentials.”

While tax cuts were on their way, Hemmings said they wouldn’t do much to ease cost-of-living pressures.

“Property prices are still going up as well,” he said. “If the RBA start cutting rates quickly, will they overeat the property market? They don’t want that to happen either.”

How brokers can help clients

When it comes to the possibility of interest rates climbing, both Burbar and Hemmings said brokers play a crucial role in helping their customers.

Burbar said the structure of the debt that customers had was important.

“There’s a lot of people that might have checked on their mortgage recently with a quick phone call to the bank or the broker, but sometimes that can only do so much,” he said.

Greenline Home Loans spoke to a number of customers who had multiple investment properties on principal and interest, with their home loans on different interest rate splits.

“That makes a big difference to the budget and everyone’s cash flow, so I think a solid review of your circumstances to see if there’s any better structure available is needed … not just a better interest rate but a better structure as well,” said Burbar

He said while banks usually gave the best interest rates to new customers, in the last year lenders “had felt the pinch and had stepped up their game on retention.”

At Greenline Home Loans, brokers regularly examined the whole loan book, checking interest rates and ensuring clients were on the best rate.

Burbar said some brokers at other businesses didn’t do regular reviews so would find if they acted now they could achieve discounted rates for their clients.

He encouraged mortgage-holders to reach out to their brokers to get the best loan deals, rather than going it alone.

Hemmings said brokers needed to stay close to their customers and ensure they were aware of what was happening with the RBA and the market, given that a rate rise would hurt a lot more people.

“Talk to them about what happens if there is another interest rate rise,” said Hemmings. “So for existing customers, have you got some spare capacity? … what do living expenses look like? Where are you spending money that you can maybe pull back a bit?”

He said it may also be difficult for clients to refinance if they didn’t meet the bank’s servicing calculation, meaning they would be stuck on their current loan.

Moving to interest-only or repayment freezes were options that could be considered for clients but they all had consequences.

Hemmings said the first move for brokers should be to ask lenders for discount rates for their clients.