The latest CPI figures have revealed that inflation has returned to the RBA’s coveted 2–3 per cent range, triggering cash strapped borrowers to ask if they will see a rate cut this side of Christmas.
The Australian Bureau of Statistics (ABS) has revealed the Consumer Price Index (CPI) rose 0.2 per cent during the September 2024 quarter, with annual inflation dropping down to 2.8 per cent from 3.8 per cent the previous quarter.
This marks the first time that annual inflation has been within the Reserve Bank of Australia’s (RBA) target band of 2–3 per cent since the March 2021 quarter.
Now that this objective of the central bank has been achieved, will we start to see rates being trimmed accordingly? Although we’ve been led to believe that would likely be the case, our initial research points to an answer that will disappoint those who have been awaiting some breathing space with their mortgage repayments.
Here’s what the RBA and other industry experts are saying about the possibility of a rate cut in 2024.
RBA Governor Michele Bullock
Comments from Bullock suggest a knee-jerk reaction to this latest economic milestone is unlikely. The RBA Governor forecast the impact of cost-of-living reliefs such as energy rebates during a monetary policy meeting in September.
“Headline inflation is expected to fall further temporarily, as a result of federal and state cost of living relief. However, our current forecasts do not see inflation returning sustainably to target until 2026,” she said.
“In year-ended terms, underlying inflation has been above the midpoint of the target for 11 consecutive quarters and has fallen very little over the past year.
“While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high. The most recent projections in the August SMP show that it will be some time yet before inflation is sustainably in the target range.
“Data since then have reinforced the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out.
“Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range.”
To summarise in english, Bullock suggest that this return to target inflation has been driven by economic relief measures such as government tax cuts and rebates. Now we are shifting the goal posts to something we are calling “underlying inflation” so the RBA will wait to see how this tracks over the coming months. A 2024 rate cut seems out of the question, and these comments suggest we could be waiting as long as 2026 to see any movement downwards.
Note: Since this post was published, the RBA have confirmed that the cash rate remains on hold at 4.35% for November. You can read the full statement here.
NAB senior economist Gerard Burg
Gerard has better news for borrowers with his interpretation of the data, predicting that we will see the first easing of rates come in February 2025.
“The path of inflation has been uncertain, and that’s impacted decision making around the RBA and when it’s going to cut,” Burg said.
“A couple of months ago, we thought May next year might be a likely starting point with the risk it could be a little bit earlier.
“We’ve now moved that position to February next year as the first cut.
“As much as anything, it’s not so important when the first cut is, or how much, [but] it’s really the end point of where we get to.
“In the latter part of 2026, we expect the rate to be sitting around about 3 per cent, which is where we see the neutral rate for the economy at present.
“So importantly, that’s low by historic standards.”
CBA
Commonwealth Bank said core inflation remained too high to justify a cut next week or in December.
“The September quarter 2024 CPI indicated that the disinflation process has continued. But not quite at the pace we anticipated on an underlying basis,” bank head of Australian economics Gareth Aird and senior economist Stephen Wu wrote.
“The upshot is that we no longer expect the RBA to cut the cash rate in December 2024.
“Instead we pencil in February 2025 for a 25 basis-point rate decrease.”
Canstar data insights director Sally Tindall
“Any hope of a cash rate cut in 2024 is now well and truly dead in the water.”
“While headline inflation is now officially in the RBA’s target band, this number is largely based on smoke and mirrors created by temporary electricity rebates and volatile petrol prices.
“Trimmed mean inflation, which is the RBA’s preferred measure, is still too far out of striking distance for the board to change tack, particularly with services inflation moving in the wrong direction.
“Unfortunately, Australian borrowers will need to keep their shoulder to the wheel into 2025.”
“While there’s a high chance the cash rate will start coming down in 2025, there’s no guarantee exactly when this will happen, how many rate cuts there will be and just how much the banks will pass on.
“The RBA has been clear it will be driven by the data and data can be volatile.
“If you do want rate relief, take matters into your own hands. Our research shows if an owner-occupier with a $600,000 mortgage a year ago refinanced to a rock bottom rate of 6 per cent, they could have potentially saved up to $6,660.
“Instead of kicking yourself over not having refinanced earlier, take action to make sure you’re not overpaying on your biggest monthly expense.”
Rate Cut Predictions for 2025
All of the big four banks are now predicting the RBA will reduce interest rates in February, although their forecasts of how many cuts will take place in 2025 vary.
ANZ believes the RBA will slash the cash rate by 0.25 per cent three times, both CBA and Westpac have pencilled in four cuts, while NAB is predicting five.
While all four big bank economists now expect the first cut to come in February, if you have a mortgage, don’t go banking on these predictions. You can read more about how to save money while waiting for a rate cut here, or talk to us today as one of your best mortgage brokers in Perth about refinancing your home loan now.
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