It wasn’t what consumers wanted – so how can you explain the decision?
The Reserve Bank of Australia (RBA) won't be giving any relief to borrowers this holiday season. Australia's Central Bank made the decision Tuesday to hold the effective cash rate at 4.35%, disappointing borrowers hoping for a last chance of rate relief ahead of the new year. The rate has not changed since November of 2023.
The RBA cited continued high levels of inflation as a primary driver for its decision.
"Measures of underlying inflation are around 3.5%, which is still some way from the 2.5% midpoint of the inflation target," according to a statement released by RBA. The Bank added that it anticipates the inflation rate won't return "sustainably to the midpoint of the target until 2026. The Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts, but risks remain."
Additional concerns laid out by the Bank include an uncertain macro environment and continued geopolitical risks abroad. RBA cited the Australian economy growing at its slowest pace since the early 1900s, with the exception of the pandemic. In addition, high labor participation rates and reduced consumer spending have done little to ease uncertainty.
"More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slow growth in the economy and weak productivity outcomes at a time of excess demand, and while conditions in the labor market remain tight," according to an RBA statement.
While the decision may be frustrating to homeowners and small businesses alike, many say it's hardly a surprise, including Alvie Oliveira (pictured), founder of mortgage brokerage firm Capta Financial, which is located in Queensland. He believes there is a way to explain the move to clients.
"We need to see at least two good quarters of inflation in order to see a decrease in the rates," Oliveira told Mortgage Professional Australia. "We need to see what the consumer will do this holiday: will they spend more, or save more?"
Anthony Waldron, chief executive officer of Sydney-based brokerage firm Mortgage Choice, agreed.
“[The hold] follows a warning from Governor [Michele] Bullock [of the RBA] that recent falls in headline inflation may be short-lived due to federal government rebates that have kept the price of energy bills low and put downward pressure on inflation,” he said. “Until the Reserve Bank is satisfied that inflation can stay within its target of 2-3% over a sustained period, households will have to hold out for the long-awaited cash rate cut."
Oliveira added that Australia's unemployment rate, which is currently low at 4.1% in October, will likely have to rise before the RBA makes cuts. The low unemployment rates mean consumers have more spending power. In addition, some companies have too few workers to fill demand, further exacerbating the problem.
Policy concerns surrounding US President-elect Donald Trump's statement that he plans to slap tariffs on China, Mexico and Canada hasn't helped tame the bank's fears and could also have an impact on the market, Oliveira said.
"If China's economy doesn't do well, we might get another increase," he explained. "Trump is very volatile and there's a huge gap between what he says and what he does. But tariffs could impact China and that could impact us [in Australia]."
In September 2024, Australia exported more than $9.5 billion USD to China, up from $9.1 billion USD in August, according to CEIC data.
The next rate cut
The next rate cut might not come until May 2025, Oliveira estimates, on par with National Australia Bank's expectations. It would also be in time with the May 17 deadline for the Australian federal elections.
Meanwhile, the other three out of Australia's big four banks — Westpac, Commonwealth Bank and ANZ — have predicted a rate cut as soon as February 2025.
For now, Oliveira said he's preparing his clients, particularly first-time home buyers, "for the worst; for a few more months of suffering.
"More and more consumers are questioning [the cash cuts]," Oliveira said, compared with years past. "We're all feeling it with the cost-of-living crisis." But, he added, "We will have a rate cut eventually."
