The Reserve Bank of Australia has left rates on hold at 4.35% at their December meeting, following a rise of 25 basis points in November.

The latest decision to leave rates on hold at 4.35% offers some relief for borrowers who, on average have paid more than $24,000 extra in interest since May 2022 and signals that inflation in Australia is cooling.

It will also give Australian borrowers some breathing space and time to plan, with the next meeting not scheduled until February 2024. 

Since May 2022, interest rates have risen 4.25 percentage points, adding more than $1,200 a month to repayments on a $500,000 home loan with a 25-year term remaining.

Will there be another rate rise in 2024? 

The next move from the RBA currently seems very uncertain, with the impacts of this years rate rises still unclear, and the bank holding out for more data. 

Westpac chief economist Luci Ellis, who until October was the RBA’s assistant governor (economic), thinks there is a good chance the next move in rates will be down.

“There’s a range of different pieces of data that are suggesting that the Reserve Bank doesn’t necessarily need to go again,” she told The Business ahead of Tuesday’s RBA meeting.
“We do believe that if they are surprised on the upside by inflation in the December quarter then they’ll raise rates again in February.”

‘Outlook remains uncertain’

The Reserve Bank’s forward guidance on rates remains vague, with the prospect of another rate rise dependent on economic data and the bank’s assessment of risks. 

“Domestically, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time when the labour market remains tight,” Ms Bullock explained.

“The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income.”

Indeed’s Asia-Pacific economist Callam Pickering said one more rate hike remains a distinct possibility early next year, but the RBA also risks tipping Australia into recession with a misjudged increase.

“Retail volumes per capita have fallen for the past five quarters, down by 4.2 per cent from its peak, and will surely fall again in the December quarter,” he noted.

“Households are relying on savings to maintain their consumption patterns, following the largest decline in real household disposable income in the past four decades.
“These consumption dynamics aren’t sustainable and it will only take a small shift in labour market conditions or a moderation in population growth to pull the rug out from under the household sector.”

Overseas tailwinds make another rate hike less likely

Australian financial markets are now pointing to a close to zero chance of further rate rises — with a fair chance of a rate cut next year. That’s thanks to the latest news from the US and UK.
AMP chief economist Shane Oliver warned that the lag between an interest rate move and its full effect on the economy can be 18 months or more, as was seen the last time Australia hiked rates this quickly.
“It takes a while for the hikes to be passed through to borrowers and for them to adjust their spending and for this to impact companies and jobs,” Dr Oliver wrote.

Broker urge borrowers to prepare for more hikes 

But, as usual, it’s anyone guess as to what the banks will do. Interestingly, Simon Bednar from Finsure Group has urged mortgage holders to prepare for more cash rate hikes from the Reserve Bank of Australia in the upcoming year. 

Bednar asserted that in consideration of the current trends, the RBA will wait regarding further decisions about the cash rate. However, the Finsure CEO said that the reserve bank may not hesitate to raise the rates again in February if the current trend reversed.

“Mortgage holders need to be prepared to see rates rise again next year,” Bednar said.

Bednar noted that brokers have played a part in helping customers as mortgage holders continued to experience stress due to the cash rate hikes.

“Brokers boast a market share of almost 70% of all new residential loans, and they are increasingly relied on by their clients who are navigating a cost-of-living crisis, and 13 cash rate increases in 18 months,” he said.

Since the time when the official rates held at 0.1% as the RBA’s first attempts to mitigate the high inflation began in May 2022, the cash rate had seen a total of 13 increases.

You can read the RBA’s full statement here. 

How can a mortgage broker help?

In times like this, mortgage brokers are becoming a lifeline for borrowers. In the face of ongoing interest rate rises, mortgage brokers can be the difference between surviving and thriving. We will take the time to go through all of your options, with detailed scenarios and outcomes relevant to your unique situation. 

We are here to help you understand your options, help to figure out how much you can borrow, how much deposit you’ll need to buy a house as well as compare literally hundreds of home loans, and negotiate with lenders on your behalf. 

If you’d like to discuss your options with an award winning Perth mortgage broker, Click here to get in touch today.

All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product.

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