RBA rate cut: Inflation data points to February move – realestate.com.au
Homeowners can be mortgage-free sooner than they think.
Inflation has fallen within the Reserve Bank's target range, opening the door to an interest rate cut in the first half of this year, even as hopes for a cut have risen since February.
The latest inflation data released by the ABS on Wednesday showed that the Consumer Price Index stood at 2.3 per cent year-on-year, up slightly from 2.1 per cent in the 12 months to October.
Inflation rose slightly due to increases in food prices, but was still within the target range of the Reserve Bank of Australia, which meets in February to discuss monetary policy.
Financial markets expect about a 70 percent chance of the RBA cutting the cash rate at that meeting, according to indicators calculated by the ASX.
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Housing demand moderated while interest rates remained higher. Photo: Sam Ruttyn
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A 0.25 percent reduction in the cash rate would shave about $90 to $100 off the average monthly payment on a $600,000 home loan.
More good news for mortgage holders is that economists widely expect the more important level of reduced average inflation – which requires more volatile costs such as energy – to fall.
The cut inflation rate will be announced at the end of January and is now expected to be lower than the Central Bank's previous forecasts.
The report is likely to play a larger role in the RBA's next cash rate decision and whether Governor Michelle Bullock cuts the official cash rate below a 13-year high of 4.35 percent.
RBA Governor Michelle Bullock will announce the next rate decision in February. Photo: Monique Harmer
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Ahead of the release of the latest inflation data, Treasurer Jim Chalmers told ABC radio that the figures would signal the RBA's next steps.
“I won't prejudge decisions taken by the Reserve Bank independently, but we know that inflation in monthly and quarterly figures is now within the target range of the Reserve Bank.”
A potential key to things for monetary policymakers is the Australian dollar falling to a three-year low.
Inflationary pressures from a weak dollar will be a talking point for the RBA, but it is unclear how much it will influence the rate decision.
Treasurer Jim Chalmers said the new inflation figures would provide a clue as to what was to come from the RBA. Photo: Getty Images
It should be noted that three of the four major banks still expect the first rate cut to happen in May. NAB, Westpac and ANZ had previously predicted the first cut in February, but revised their forecasts to late 2024.
The Commonwealth Bank is the only big four to stick to its early call for its first rate cut in February.
Canstar Data Insights director Sally Tindall said in a company release that landlords should still remember “there is no ironclad guarantee that we will see cuts”.
“If you have a mortgage, don't cross your fingers and hope for the best,” he said.
“Get a head start over the summer by getting your interest rate as low as possible, either through a deal or a refinance.
“So when the RBA cuts finally come, you can have your cake and eat it too.”
Rising interest rates, plus rising prices, mean home payments in some areas could double by 2022.
Ahead of the release of monthly CPI data, the Commonwealth Bank said the annual cut-off average was expected to fall to 3.4 percent in November from 3.5 percent in October.
The CBA's chief economist, Stephen Wu, noted that updates on prices for things such as services “will provide a boost to the RBA's assessment of domestic inflation”.
