RBA holds cash rate at 4.35%
- Posted By Rey Properties
RBA holds cash rate at 4.35%
Despite anticipation around rate cuts hitting Australia given recent rate cuts announced in Canada and, most recently, the ECB, the Reserve Bank of Australia (RBA) has kept the cash rate steady at 4.35%. This decision aligns with the RBA’s cautious approach as they monitor economic conditions closely.
Global context and economic outlook
Last week, the central banks of Canada and the European Central Bank (ECB) reduced their interest rates by 25 basis points. Commentators note that these reductions reflect different market conditions. Canada’s cash rate has been lowered to 4.75%, which remains higher than Australia’s current cash rate. Economist Greg Jericho, in a recent article in The Guardian, argues that cutting interest rates to a level still higher than Australia’s is not necessarily advantageous. He points out that Australia’s inflation started to rise above 3% later than in countries like the US, UK, and Canada, and it peaked later and lower, with the exception of a one-off spike in December 2022 due to travel prices. Some economists propose raising the cash rate to 5% to curb inflation more quickly, though this could impact employment levels.
House prices on the rise
House prices appear to be growing faster than the RBA would like. Trent Vivian from Vivians Real Estate in Mosman Park, WA, says he is dumbfounded by the rebound in Sydney prices, given their high median house prices. “I feel like Perth is going to be fairly protected. In fact, an interest rate rise will probably only make more people turn towards Perth as it’s still quite affordable considering the rest of the country. If interest rates hold, then I think you will find the market will continue its slow trajectory upwards.”
Record high rents across Australia in early 2024
According to CoreLogic, Australia’s rental market has seen a significant uptick in 2024, with median weekly rents hitting a new high of $627, with Sydney leading at $770. Renters are increasingly seeking more affordable housing options in outer metropolitan and regional areas due to these rising costs. Despite some regions experiencing minor declines, overall rental prices continue to climb, reflecting ongoing supply and demand pressures.
Inflation increase
The March 2024 quarter saw a 1% rise in the Consumer Price Index (CPI), up from 0.6% in the previous quarter. Although annual inflation dropped to 3.6% from its peak of 7.8% in December 2022, it remains above the RBA’s target of 2-3%.
Impact on households
High cash rates continue to strain mortgage holders. Financial experts advise monitoring lender rate cuts and exploring refinancing options to seek out better deals.
Future rate changes
While a rate cut is possible by late 2024 if inflation stabilises, the RBA’s current strategy is to maintain the rate and observe economic trends. Pete Wargent from AllenWargent says, “The RBA will most likely be on hold and in ‘wait and see’ mode for some time now. We’ll get important updates on inflation in Australia at the end of July and the end of October. Until then, policymakers will continue to watch the data unfold.”
(https://www.homely.com.au/news/author/the-homely-team, 2024)