No Xmas miracle for borrowers as RBA holds

The Reserve Bank of Australia (RBA) has held the official cash rate at 4.35 per cent in its final monetary policy meeting for 2024.

Today’s (10 December) cash rate decision marks the eighth consecutive hold since it was last raised by 0.25 per cent in November 2023.

The RBA’s next meeting will not be held until Monday 17 February, with the decision being announced on 18 February 2025.

Following the decision, the Reserve Bank stated that sustainably returning inflation to target within a reasonable timeframe remains it’s highest priority.

“This is consistent with the RBA’s mandate for price stability and full employment. To date, longer term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

“While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high.

“The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint.

The RBA acknowledged that the data on inflation and economic conditions “are consistent with these forecasts” and that it has gained some confidence that inflation is moving sustainably towards the coveted target range.

As has been the case for most of the year, the RBA stated it will continue to rely upon data and the evolving assessment of risks to help guide its decisions.

The board still does not see inflation returning sustainably to the midpoint of 2.5 per cent until 2026.

Reacting to the decision, Mortgage Choice CEO, Anthony Waldron, said while this was not the “festive season gift borrowers were hoping for”, the cash rate being held does not come as a surprise.

“It follows a warning from Governor Bullock 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.

“Until the Reserve Bank is satisfied that inflation can stay within its target of 2-3 per cent over a sustained period, households will have to hold out for the long-awaited cash rate cut,” he said.

Eleanor Creagh, REA group senior economist, commented the RBA is likely to keep rates on hold throughout the first quarter of 2025 barring any “external shock or significant shifts in unemployment or underlying inflation”.

“Although headline inflation is within the 2-3 per cent target, underlying price pressures, stickier components of inflation, and a resilient labour market have prevented an interest rate cut this year.

“Households remain under pressure and consumers remain cautious, choosing to save a large portion of July’s tax cuts. Although employment growth continued and the unemployment rate held steady at 4.1 per cent in October, the labour market has softened over the past year. Slowing employment and inflation may prompt rate cuts from May 2025.”

According to Finsure, rates will likely be on hold until the second quarter of 2025. With the likelihood of rates coming down next year, CEO Simon Bednar said that brokers need to be prepared to assist mortgagors seeking to reduce their home loans.

“I think that 2025 will present positive tail winds for brokers with rate cuts more than probable,” Bednar said.

“Once there is some movement, consumers will be looking to reduce their mortgages, and I advise brokers to be prepared and well placed to take advantage of this. They need to be proactively managing/communicating with their customers in readiness for this.”

Executive director at Connective, Mark Haron, remarked on a year defined by the “resilience of brokers navigating through a high-interest-rate environment”.

“Borrowers have taken that stability as a bit of a green light and are regaining their confidence in the market in the latter half of 2024. Our data shows that Connective brokers achieved $115 billion in applications, year to date to the end of October compared to $110 billion in total for 2023.

“As we step into 2025, there are many things that brokers need to consider –- the anticipated rate cuts, and the local and global economic and political landscape.

“Brokers should use this opportunity to get ahead of the curve and be prepared because clients are going to wonder how this will affect them, the financial decisions they will have to make and what brokers are doing to help them,” Haron added.

Resource: brokerdaily.au