The Reserve Bank of Australia (RBA) has kept interest rates on hold for a ninth consecutive meeting, avoiding an early – and unexpected – Christmas present for thousands of borrowers.
Australia’s official cash rate target will remain on hold at 4.35 per cent, where it has been since December 2023.
A borrower with an average home loan size of $641,416 is now forking out almost $4000 a month in repayments – up considerably from the $2515 they were paying prior to the rate hiking cycle in May 2022.
Households sweating on repayments will now need to wait until 2025 for any movement on interest rates, with most economists now predicting any chance of a cut won’t be made until at least May.
In its monetary statement, the RBA board said it was necessary to keep rates on hold in order to give the economy more time to correct from a period of sustained high inflation.
“While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,” the board said.
“The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint.
“Recent data on inflation and economic conditions are still consistent with these forecasts, and the Board is gaining some confidence that inflation is moving sustainably towards target.”
Graham Cooke, head of consumer research at Finder, said many households would be stressed to breaking point if they were waiting on a rate cut.
“Thousands of stressed homeowners can’t manage much longer with soaring mortgage costs smashing household budgets,” Cooke said.
“While we expect the RBA to start cutting the cash rate next year, many will struggle through the festive season with less money to spend than in previous years.”
Josh Gilbert, Market Analyst at eToro, said there was some danger that measures to ease cost of living may need Australians are spending more than they should.
“Australians seem to be resuming old spending habits, even amidst a high cost of living,” Gilbert said.
“The implementation of Stage 3 tax cuts, economic relief measures, a decreased likelihood of future rate hikes, and Black Friday sales seem to have boosted consumer sentiment and increased spending on discretionary items.
“Additionally, with a tight labour market in place, the RBA is likely to remain concerned about inflation and may not see an opportunity for a rate cut in the near future.”
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REA Group Senior Economist Eleanor Creagh said if and when rates do start falling, it’s likely that home prices will shoot up again.
“In the months ahead, home prices are expected to lift, though the pace is expected to remain softer trailing the strong growth in prices over recent years,” she said.
“While home price growth is currently slowing, it is expected to gain momentum once interest rates begin to fall, though the timing of rate cuts remains uncertain.
“If conditions warranting rate cuts emerge in May 2025, improving affordability and buyer confidence are expected to drive renewed demand and price growth through the second half of the year.”
