Up until recently, predictions from Australia’s top economists and home loan lenders, had us all eagerly awaiting the first downward movement in interest rates since before we can remember, towards the middle of this year.

Now, following the most recent release of key inflation data by the Australian Bureau of Statistics last Wednesday, shows that the Consumer Price Index (CPI) rose 1% during the March quarter – which overshot what economists had expected and was 0.4% higher than the rise seen in December 2023.

As it stands, borrowers are being warned that an interest rate cut may be further off than we were initially led to believe and that the Reserve Bank (RBA) is a long way from having inflation under control in their target range of 2-3%. As it currently stands, inflation is sitting at 3.6%.

Amid this less than ideal progress in combatting inflation, Westpac has now revised its forecast for any rate cuts from the Reserve Bank to November 2024 as a best case scenario.

This prediction is largely in line with the other big banks including NAB and ANZ, while CBA still anticipates we’ll see a rate cut in September.

So what happened to the talk of a rate cut?

While the majority of economists had tipped rates to come down mid to late 2024, the inflation rate remains high and is falling more gradually than expected.

This was due in large part to services inflation, which remains high and is moderating only gradually.
In their statement released today, the RBA said that higher interest rates have been working to bring aggregate demand and supply somewhat closer towards balance. But the data indicate continuing excess demand in the economy, coupled with strong domestic cost pressures, both for labour and non-labour inputs.

“Conditions in the labour market have eased over the past year, but remain tighter than is consistent with sustained full employment and inflation at target. Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth. Meanwhile, inflation is still weighing on people’s real incomes and output growth has been subdued, reflecting weak household consumption growth.”

Will rates be going up?

Financial markets are no longer pricing in a rate cut this year following the latest data showing a robust domestic jobs market and stubbornly high inflation in the US, with interest rate futures now implying the RBA will remain on hold until at least February 2025.

With the RBA leaving rates on hold at 4.35% following their most recent meeting, a strong jobs market, upcoming personal income tax cuts and ‘sticky’ prices for services and non-discretionary goods the timing of the Reserve Bank’s first rate cut could potentially be pushed to 2025 at the earliest.

PropTrack director of economic research Cameron Kusher said the latest data would likely push out the timing of the first rate cut to early 2025.

“Annual inflation has slowed, which is positive, but quarterly inflation was much stronger than anyone was anticipating, and that increases the likelihood that interest rate cuts going to be pushed back,” he said.

What does this mean for me?

It means you’re likely in a holding pattern, and if you are holding your breath for a rate cut to experience some relief, it might be time to look at a new strategy.

Westpac and Commonwealth Bank have recently revised their cash rate forecasts, with both not expecting the RBA to cut rates until November.

Others like Judo Bank’s Warren Hogan had even predicted the cash rate to climb to 5.10% by Christmas.
As per usual, even the top economists can’t accurately predict the future, so you need to think about your worst and best case scenario, and ideally talk to an experienced mortgage broker to see if what your options are. If you’d like to get an idea almost instantly, click here to allow us to get the ball rolling and check your rate.

It’s best to know the lay of the land either way so you are able to make informed decisions if and when the need arises.

If you are coming off a fixed rate home loan, we can look at refinancing you to the most competitive variable rate to ensure you’re not paying more than you have to. In light of ongoing inflation and rate cut uncertainties, we can actively engage with your lender to potentially secure better rates.

With predictions varying from no rate cuts to three in 2024, the financial implications for borrowers are substantial. Borrowers banking on a handful of RBA rate cuts this year should shift their focus to making sure they can meet their current mortgage repayments for the remainder of 2024. If we can help you to figure out the best way forward, please reach out.

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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