Blue Christmas interest rates for borrowers kept at 4.35% – realestate.com.au

Rumors of a 2024 rate cut that have plagued the country since the winter came to nothing today, with the Reserve Bank of Australia confirming a cash rate of 4.35%.

While economists have lost faith in the possibility of a cut, mortgage holders in Australia held out some hope that they would see even a small reprieve before Christmas.

Following this week's final meeting of the RBA board, the cash rate was confirmed today to remain unchanged for 14.^c It's a consecutive month that core inflation has remained high.

Eleanor Creagh, chief economist at the REA Group, said underlying price pressures, stickier components of inflation and a resilient labor market have prevented rate cuts this year.

A Reuters panel of 44 economists was unanimous in its expectation that the cash rate would be cut today, while three of the big banks expect the bailout to end by next year.

ANZ, Westpac and National Australia bank are currently forecasting the first rate cut in May, while the Commonwealth Bank is more optimistic about the February expectation.

Ms Creagh said agreed rates are likely to be maintained in the first quarter.

“It aims to bring inflation back to target on a sustained basis in the absence of an external shock or significant changes in unemployment or core inflation,” he said.

Governor Michele Bullock said the bank continues to aim for a return to inflation as a top priority. Photo: News Corp Australia

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“Households remain under pressure and consumers remain cautious, opting to save a large portion of the tax cuts in July. Although employment growth continued and the unemployment rate held steady at 4.1% in October, the labor market has softened over the past year. A slowdown in employment and inflation may lead to interest rate cuts starting in May 2025.”

In its monetary policy statement today, the RBA confirmed that inflation is still too high to consider cutting the cash rate.

“The November SMP projections suggest that it will be some time before inflation remains in the target range and approaches the midpoint.”

Fighting inflation

Continued progress on curbing headline inflation over the past few months has been seen as positive news for the future of interest rates. Inflation in September after reaching 7.8% at the end of 2022.

The RBA's preferred measure of the job situation, core inflation, remains outside its target range of 2-3%. The trimmed average rose to 3.2% in September and 3.5% in October amid seven consecutive quarters of decline.

Mortgage Choice chief executive Anthony Waldron said keeping the cash rate “wasn't the holiday season gift borrowers were hoping for”, but there was no surprise.

Eleanor Creagh, chief economist at REA Group, says the cash rate will remain at 4.35% until at least May. Image: provided

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“This follows Governor Bullock's warning that the recent dips in inflation may be short-lived as the federal government keeps energy bills down and puts downward pressure on inflation,” he said.

“Until the Reserve Bank is confident that inflation can remain within its 2-3% target for a sustained period, households will have to wait for a long-awaited cash rate cut.”

Housing and home financing

After a slow year for refinancing in 2024, Mr. Waldron said the stagnant interest rate environment is finally leading to a rate hike.

“In a sign that some households are concerned that current interest rates remain high, Mortgage Choice home loan data shows a 3% month-on-month increase in the rate of refinancing submissions during November,” he said. “This accounts for the largest percentage of repayments all year as borrowers seek cost-of-living relief.”

That relief may be further away than previously thought, but rate cuts are not expected until April at the earliest.

The latest PropTrack Home Price Index showed an increase of 0.15% in November.

Last month, the national median home value hit $800,000 for the first time — a new high on the back of 23 consecutive months of growth.

“While the rate cut won't happen until next year, there's plenty you can do now to meet your home loan goals in 2025,” Mr Waldron said.

Although house price growth is currently slowing, it is expected to pick up speed once interest rates begin to fall, although the timing of rate cuts remains uncertain.

“The increase in properties coming to market this year has been met with strong demand, but increased stock for sale, coupled with availability constraints and a persistently high interest rate environment, has led to a slowdown in price growth,” Ms Creagh said.

“House prices are expected to rise in the coming months, although the pace is expected to remain softer after strong price growth in recent years.”

If the conditions for a rate cut in May 2025 emerge, it is expected to spur a renewal of demand and price growth by the second half of the year.

“Whether you're thinking about finding a better rate on your current home loan or planning to buy in the new year, your mortgage broker can help you make the best move,” Mr Waldron said.

New decision makers

The RBA will make its next decision on the cash rate in February – the first of which successfully passed the Senate late last month.

Anthony Waldron, chief executive of Mortgage Choice, says refinancing will slowly pick up after 2024. Image: Supply

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Amendments to the Reserve Bank Act will see one board focus on monetary policy and interest rates, while another will handle general governance.

Speaking to the Australian Economic Development Committee in Sydney recently, Ms Bullock said a “significant amount” of the work involved in managing the bank's operations would no longer be her responsibility.

The decision to split the board comes on the heels of an independent review into the RBA in 2023, where the current board faced criticism for a lack of rigor in questioning the governor's interest rate decisions.

As we close out 2024, all eyes will be on the numbers in the next Australian Bureau of Statistics inflation data releases. The next monthly figures are expected on January 8, and the figures for the December quarter are expected on January 29.