interest rates
Blue Christmas for borrowers as interest rates are held at 4.35%
The Reserve Bank of Australia (RBA) has confirmed the cash rate will remain at 4.35%, leaving mortgage holders disappointed as hopes for a pre-Christmas rate cut are dashed. This marks the 14th consecutive month of unchanged rates amid persistent inflation challenges.
Key Factors Influencing the Decision
Economic Pressure:
Economist Eleanor Creagh highlights that “underlying price pressures, stickier components of inflation, and a resilient labour market” have delayed rate cuts. While headline inflation has shown steady improvement—falling to 2.8% in September—core inflation remains elevated at 3.5%, exceeding the RBA’s target of 2-3%.
Labour Market Softening:
Despite steady employment growth, the labour market has softened over the past year, with the unemployment rate at 4.1% in October. This softening, along with slowing inflation, may set the stage for potential rate cuts from May 2025.
Bank Predictions:
Major banks remain cautious, with ANZ, Westpac, and NAB forecasting rate cuts in May 2025, while Commonwealth Bank holds a more optimistic view, expecting changes as early as February.
Impact on Borrowers and Housing
Refinancing Uptick:
Mortgage Choice CEO Anthony Waldron reports a 3% increase in refinancing submissions in November, as borrowers seek relief from high living costs. He advises borrowers to consider “finding a better rate on your current home loan or planning for 2025.”
Housing Market Trends:
House price growth has slowed slightly, with a 0.15% increase in November, but remains strong, hitting a national median value of $800,000. Ms Creagh notes, “Increased stock for sale and affordability constraints” are tempering growth. However, prices are expected to gain momentum once rate cuts are implemented, potentially driving renewed demand in the second half of 2025.
Structural Changes at the RBA
From February 2025, the RBA will implement a new split-board structure, with separate boards for monetary policy and governance. This change follows criticism from an independent review in 2023, which called for more robust questioning of interest rate decisions. Speaking on the reform, RBA Governor Michele Bullock remarked that the “substantial amount” of operational responsibilities will be delegated under the new system.
Looking Ahead
With the RBA’s next cash rate decision scheduled for February, attention now turns to upcoming inflation data from the Australian Bureau of Statistics. Key dates include 8 January for monthly figures and 29 January for the December quarter report, which will be critical in shaping the outlook for interest rates in 2025.