Australian mortgage holders are likely to be spared another interest rate hike on Tuesday, but will have to wait until later in the year before a possible cut is made.
Reserve Bank of Australia Governor Michele Bullock will announce the board’s decision on the official cash rate at 2.30pm on Tuesday following its two-day meeting in August.
Ms Bullock will also explain the council’s reasoning for its decision and whether or not a cut or increase could be implemented this year.
Most economists believe that last week’s stable consumer price index data was enough to allow the RBA to keep the official cash rate at 4.35 percent, where it has remained since November last year.
Although the June quarter inflation figure of 3.8 per cent was still above the RBA’s target of 2-3 per cent, it did not rise as much as expected.
However, the all-important core inflation figure, or the trimmed average that excludes big price moves, fell to 3.9 percent from 4 percent.
EY Oceania chief economist Cherelle Murphy told Sky News on Monday that the RBA would be “reasonably comfortable” and there was “no rush” to do anything.
“I think the Reserve Bank will be reasonably comfortable knowing that things are evolving as expected and that there is no rush to do anything,” Murphy said.
Australian mortgage holders are likely to be spared another interest rate hike on Tuesday, but will have to wait until the end of the year before a possible cut is made.
“They have to continue to see how last year’s rate moves continue to flow through the economy.”
The RBA will also publish its latest economic forecasts on Tuesday, including inflation, which will take into account the $300 discount on energy bills for all households that the Albanian government announced in its May budget.
For now, it does not expect the inflation rate to reach the midpoint of its target range until well into 2026.
The Albanian government is heavily committed to controlling inflation and lowering interest rates as it prepares for elections in May next year.
In the May budget, the Treasury forecast inflation would fall to 2.75 per cent by Christmas, well below the RBA’s forecast of 3.1 per cent in May.
Treasurer Jim Chalmers said the rebate, which will be spread over four quarters of this financial year, would put downward pressure on inflation.
CommBank’s Stephen Wu said the impact of energy rebates could prompt the RBA to “revise downwards” headline inflation figures.
However, he said the forecast for the trimmed average CPI would likely remain the same.
“More specifically, we expect the Board to maintain its June statement that ‘the path of interest rates that will best ensure that inflation returns to target over a reasonable time frame remains uncertain and the Board is not ruling anything out,'” he wrote.
Reserve Bank of Australia Governor Michele Bullock will announce the board’s decision on the official cash rate at 2.30pm on Tuesday after its two-day meeting in August.
“While the board will have welcomed the latest inflation data, there is no need to deviate from the recent script. Indeed, it is too early to change tone.”
The official interest rate of 4.35 percent is the highest in 12 years and has caused mortgage stress for many households facing cost-of-living pressures.
Stressed borrowers who bought just before rate rises began in 2022, at the peak of their budget, were dangerously close to breaking point, according to new research from Australia’s largest financial comparison site Canstar.
A dual-income couple earning a combined median income of $184,060, who maxed out their borrowing capacity and purchased a home in early 2022, could now be contributing roughly 43.90 percent of their pre-tax income to rebates.
“With the big banks not predicting rate cuts before November at the earliest and, at worst, May 2025, many borrowers will be living in stress for quite some time,” said Canstar financial expert Steve Mickenbecker.
‘Still, a rate cut will only take many mortgage holders from extreme stress to deep stress.’
Since the big four banks still forecast the next rate move will be a rate cut, a 0.25 percent reduction could reduce current payments on a $600,000 loan by $101 to $3,984 per month.
But an unexpected 0.25 percent increase would add another $102 and bring monthly payments on a $600,000 loan to $4,187.