The inflation rate was at its lowest level in three years. One might think there is reason to celebrate, given the extreme economic pressures of a prolonged cost-of-living crisis.
But there’s one question that lingers on most homeowners’ lips. “Will the Reserve Bank of Australia (RBA) cut interest rates next week?”
One in three Australians believe they are over-borrowed on their home loan, and one in five have missed a repayment in the last year, according to new research. This means many Australians are in dire need of repayments.
The Reserve Bank of Australia’s board has taken no action on the official cash rate since raising it to its highest level in 13 years in November last year.
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A year on from the RBA’s latest decision, the Australian Bureau of Statistics on Wednesday reported that the consumer price index had fallen from 3.8% to 2.8%.
September’s figures were the first time since March 2021 that the RBA’s target range (2-3%) was reached on a quarterly basis.
The RBA is expected to make its interest rate decision on Tuesday. Have a story to tell? Contact us at yahoo.finance.au@yahooinc.com
But sadly for hopeful mortgage holders, Chancellor Michelle Bullock warned that headline inflation was not strong enough to push for rate cuts “in the short term”.
She points to consistency in the underlying inflation. This reading filters out volatile or temporary changes like government energy rebates.
Accusations have been raised that the deflationary effects of cost-of-living relief packages give a false impression of the health of the economy.
But economist and Yahoo Finance contributor Stephen Koulas said the inflation numbers were “excellent” and that factors that are not affected by interest rates, such as tobacco, health services, education, rent and insurance, were He claimed that it was accelerating inflation.
“The interest rate cycle is coming down around the world, and it would be strange if we didn’t join in that sooner,” he said.
“Inflation is enough to justify it, slowing wage growth is enough to justify it, economic downturn is enough to justify it.
“We got there in the end. Goal achieved.”
But other economists have poured cold water on the prospect that the RBA will cut interest rates next week.
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Devika Shivadekar, economist at SM Australia, said: “While today’s numbers are a step in the right direction, concerns about the continued tightening of the labor market have prompted the RBA to keep interest rates unchanged at 4.35% next month. “That’s a good reason to keep it that way.”
AMP Deputy Chief Economist Diana Musina agreed.
“Today’s data is consistent with the RBA keeping the cash rate unchanged at 4.35% for the time being,” Mujina said.
“While the labor market is holding up very well, economic activity remains weak, employment growth is likely to slow, and the unemployment rate also declines, with a slowdown in inflation leading to a It should be possible to start lowering interest rates with the RBA decision.”From here, there should be a slight upward trend.”
Some argue that a rate cut could come in December, the last chance for the RBA to provide a bailout in 2024.
Charu Chanana, chief investment strategist at Saxo Asia-Pacific, said September’s data was “not too cold to prompt an early rate cut, nor too hot to push back.”
“If the US Federal Reserve cuts rates more aggressively, or if Australian consumers weaken sooner than expected, there remains a chance the RBA will cut rates in December.”
Compare the Market’s Chris Ford said he was not convinced of a rate cut until he saw a more “sustainable trend”, although he said it was “more likely”.
“Governments will be wary of cutting the cash rate too soon, given the potential for increased spending over the Christmas period,” Mr Ford said.
“People are going on vacation, traveling to see family, and buying gifts on sale. Families may spend more on boredom activities and holiday care.”
Dwyfor Evans, head of Asia-Pacific macro strategy at State Street Global Markets, predicted the RBA would ease interest rates in “early 2025.”
Commonwealth Bank was the only Big Four bank still in the forecast for a rate cut in 2024.
The situation has changed today, with other major players backing away from rate cuts in 2024 as inflation remained high in the second half of the year.
Commonwealth Bank: First rate cut in February 2025, 5 rate cuts, cash rate to 3.10%
Westpac: First rate cut in February 2025, 4 rate cuts, cash rate to 3.35%
NAB: First rate cut in February 2025, cash rate to 3.10% after 5 rate cuts
ANZ: First interest rate cut in February 2025, cash rate reaching 3.60% with three interest rate cuts
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