RBA governor Michele Bullock revealed the central bank board did not "explicitly" consider an interest rate cut, or a hike, at its December meeting. The board said underlying inflation remained "too high" at 3.5 per cent and noted it was not expected to return to the midpoint of 2.5 per cent until 2026.
Interestingly, the RBA removed its hawkish approach in its statement and noticeably dropped its usual line about "not ruling anything in or out" and its warning about the need to "stay vigilant to the upside risks of inflation".
Bullock said it was a "deliberate" move to remove the messaging, which in previous months had implied the door was still open for an interest rate hike.
"The board wanted to give the message that they have noticed some of the data is a bit softer," she said.
“We’re not saying that we’ve won the battle against inflation yet but we’re saying that we have a little bit more confidence that things are evolving as we think in our forecast."
Yahoo Finance contributor and economist Stephen Koukoulas said there was a possibility the RBA could cut the cash rate by a supersized 0.50 per cent in February.
“If the data flow comes out as expected, the RBA’s got a lot of catch up to do,” he said.
“Certainly the 25 [basis point cut] is on the cards but maybe, just maybe, they go 50 points in February as the economy hits the brick wall.”
Are you a mortgage holder waiting for interest rate relief? Share your story with tamika.seeto@yahooinc.com
Bullock said she "honestly" didn't know if the board would be cutting rates in February.
"We're going to be looking at the data and be data driven," she said.
However, underlying inflation, which strips out volatile items like fuel prices and energy subsidies, sat at 3.5 per cent, which is still above the board's target.
Australia’s economy is growing at its slowest pace in decades outside of the pandemic, while the unemployment rate held steady at 4.1 per cent in October.
Australians will have to shoulder the burden of restrictive monetary policy throughout the festive season, with the next opportunity for a cut in February. Businesses face the prospect of another cost-of-living blow if consumer confidence continues to drop off as Aussies tighten their purse strings.
A Yahoo Finance poll of more than 7,000 readers found that 20 per cent feared they would have to sell their homes if a 2024 rate cut did not come to fruition.
Bullock said cost-of-living pressures remained a "burden on all Australians". She warned Aussies that the prices they once paid a few years ago were now a thing of the past.
"Prices are not going back to where they were before this high inflation," she said.
"We haven't had a sustained period of high inflation in Australia for more than 30 years."
When will the RBA cut interest rates?
The major banks have been slowly pushing back their forecasts for when they think the RBA will first cut rates. Three of the Big Four now think a cut will come in May.
Here’s what they currently think:
CBA: February first cut, four cuts in total
Westpac: May first cut, four cuts in total
NAB: May first cut, five cuts in total
ANZ: May first cut, two cuts in total
CBA head of Australian economics Gareth Aird said the bank was "encouraged" by today's statement for its February rate cut call.
"Our base case remains for the RBA to commence an easing cycle in February 2025 (i.e. at the next Board meeting)," he said.
"And we look for 100 basis points of easing over 2025 that would take the cash rate to 3.35 per cent."
ANZ head of Australian economics Adam Boyton said the board's statement had evolved to "leave the door open to a rate cut in early 2025".
"Our own view remains that May is more likely than February for the first cut, although the ultimate timing will depend on the data over coming months," he said.
Half of experts surveyed for Finder’s Cash Rate Survey also expect the first rate cut will come in May 2025. A further 24 per cent have forecast a cut after this.
Others are more pessimistic, including Richard Holden, Professor of Economics at UNSW Business School.
He told Yahoo Finance he doesn’t expect homeowners will get any relief until at least 2026 and has warned cutting rates will make inflation “worse”.
Risk of interest rate cut
Squeezed mortgage holders have cried out for an interest rate cut to alleviate financial pressure.
But others are waiting for one to even make a play at the property market.
The ramifications of a wave of buyers entering the property market could be a reason the RBA has been “highly cautious in adjusting interest rates”.
“A potential rate cut could stimulate significant activity in the property market, pushing prices higher and disadvantaging those awaiting improved affordability,” the Rethink Group CEO told Yahoo Finance.
She told Yahoo Finance that if rates go down, prospective buyers' borrowing power goes up, which could lead to frenzied bidding wars pushing up prices.
Borrowers $6,000 worse off, despite rates hold
Interest rates have now been on hold for more than a year, but that doesn’t mean borrowers aren’t still being hit with higher costs.
RateCity research found the average mortgage holder with a $500,000 loan a year ago would have paid a whopping $35,308 in interest in the last year.
If they refinanced to a lower rate a year ago, they could have slashed their bill to $29,708, a saving of $5,600.
RateCity’s Laine Gordon said this money was “better off in your pockets”.
“Plenty of borrowers would have liked a little treat in the form of a rate cut for Christmas, but they’ll need to gift it to themselves,” Gordon said.
“If you haven’t refinanced your home loan recently, what are you waiting for?”
Switching to a rate under 6 per cent could save you almost $10,000 in interest over the next two years, Laine said.
For those with bigger loans in Sydney and Melbourne, the savings could be closer to $20,000.
