RBA rate cuts may take months to boost demand
Despite rate cuts in Canada and New Zealand, economic recovery has been slow – suggesting Australia may face a similar delay even if the Reserve Bank (RBA) lowers the cash rate soon.
Equifax modelling indicates that if the RBA cuts rates in February, the economic benefits may not be fully realised for six to nine months. Both Canada and New Zealand saw steady rate cuts over seven months, and while mortgage demand is starting to recover, the pace remains slow.
“The RBA will be looking at signs of increasing consumer confidence and encouraging inflation data ahead of their decision next week, but another factor that should be considered is the recovery time for Aussie households,” said Moses Samaha (pictured above), Equifax executive general manager.
“What we have seen in Canada and New Zealand is a longer-than-expected recovery following a number of rate changes by the respective central banks. It seems to me that there are other related factors that are impacting consumer and SME confidence.
“I suspect we won’t see a recovery until just before the end of the calendar year unless the RBA takes a more aggressive stance than other central banks.”
Recent data from Equifax’s Quarterly Consumer Credit Insights for Q4 2024 suggests a shift in consumer sentiment. Buy Now, Pay Later (BNPL) demand rose 15.7% year-on-year, marking the first increase since 2022. Unsecured credit applications increased by 5%, indicating a willingness to borrow beyond the typical holiday spending boost.
“Although economic impacts from a potential rate cut may only be fully experienced in coming months, there is positive sentiment emerging based on the anticipation of rate cuts,” Samaha said.
“Consumers should be conscious that a change in the interest rate isn’t a magic bullet for cost-of-living pressures, and make sure they’re not over-extending themselves based on anticipation, or even in the immediate aftermath of a single rate reduction.”
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