Despite inflation rates finally heading towards the Reserve Bank of Australia’s (RBA) target range of 2-3%, the RBA decided to keep the official cash rate steady at 4.35% at their September meeting – and experts are predicting it could stay that way until 2025.
Many Australian homeowners have added rate-cuts to their Christmas wish lists, but it looks like we could be waiting a little while longer. Whilst inflation is moving in the right direction, the RBA is still playing it safe, wanting to make sure inflation is firmly under control before easing financial pressures.
Why the RBA is waiting to drop interest rates
Several economic indicators suggest that the Australian economy is struggling. The unemployment rate raised slightly in July, and outside of the pandemic years, economic growth has been the slowest since 1992.
Despite these signs, the RBA is cautious. Whilst inflation may dip below 3% for the first time since 2021, the RBA’s goal is to stabilise inflation and dropping rates too soon could undo that progress.
Will inflation finally hit the 2-3% target?
September’s Consumer Price Index (CPI) data could show inflation dropping below 3% which would be a major milestone, however, Treasurer Jim Chalmers has warned that this monthly CPI data carries less weight than quarterly figures, so this may not be enough to sway the RBA’s decision yet and many experts believe that the RBA’s 2-3% target should remain in place.
Why? Because changing the target could lead to higher inflation becoming the new normal in Australia, resulting in higher interest rate and more economic instability.
A sluggish economy, rising costs and reduced confidence
The Australian economy remains flat, with business confidence dropping in August and consumer confidence at a historic low. Housing affordability and household debt are two major concerns for Australians, with nearly 50% of household income going toward mortgage repayments (and in NSW, that figure jumps to 58%).
A report from Finder shows that 40% of Australians have said they are struggling to pay their mortgages each month, with savings rates hitting new lows. Many consumers are turning to credit cards and buy-now-pay-later services to get by, adding to personal debt levels.
Can homeowners expect a rate cut soon?
Whilst there is hope that rates will drop soon, the reality is that most experts are not predicting rate cuts this side of Christmas. Some predict rate cuts could come sooner, but the RBA’s cautious approach means that interest rates will likely remain high for a while, even as inflation cools.
What can you do to ease mortgage stress while rating for rate cuts?
Interest rates may not be dropping yet, but you may still be able to get a better deal on your mortgage.
If you haven’t reviewed your loan so far in 2024, now might be the time to do that – and our team is here to help. Contact us today to chat about refinancing and let us find the best mortgage for your needs.
Not yet a home owner? Get in touch with us to organise pre-approval before selling season really kicks off and make sure you have everything ready to go when you find your dream home.