Reserve Bank of Australia hints when interest rates will fall

The Reserve Bank of Australia has given the strongest hint that it could start cutting interest rates in 2024, after the strongest rises in nearly three decades.

Borrowers managed to absorb another 0.5 percentage point increase in August, bringing the cash interest rate to a six-year high of 1.85 percent.

This has resulted in a borrower with an average mortgage of $600,000 having to pay an additional $169 in their monthly mortgage payments – the fourth consecutive rate hike for Australian homeowners since May.

But the Reserve Bank hinted in a new 71-page monetary policy statement released Friday that it could cut interest rates again as inflation slows.

The Reserve Bank of Australia has given the strongest hint that it could start cutting interest rates in 2024, after imposing the strongest hikes in nearly three decades (pictured is Governor Philip Lowe)

“The predictions are based on a number of technical assumptions,” it said.

Big banks raise rates

COMMON BANK: 0.5 percentage point up from August 12, lowest floating rate to 3.79 percent

ANZ: 0.5 percentage point up from August 12, lowest floating rate to 3.69 percent

WESTPAC: 0.5 percentage point up from August 18, lowest floating rate to 3.64 percent

NAB: 0.5 percentage point up from August 12, bringing the lowest floating rate to 3.94 percent

Source: RateCity

The path for the spot interest rate reflects expectations derived from surveys of professional economists and pricing in the financial markets, which assume that the spot interest rate will rise to about 3 percent by the end of 2022 and then fall slightly by the end of 2022. the end of 2024.

“Market pricing suggests that key interest rates will peak in the first half of 2023 at levels significantly higher than at the start of the pandemic.”

Monetary policy easing in 2024 would be the first since November 2020, when the RBA cut cash interest rates to an all-time low of 0.1 percent.

Reserve Bank governor Philip Lowe repeatedly promised in 2021 that interest rates would not rise “at the earliest” until 2024, but in May he raised interest rates for the first time since November 2010 after the Russian invasion of Ukraine lowered the average price of gasoline. pushed above $2 per liter.

Inflation is expected to rise to a 32-year high of 7.75 percent by the end of 2022, a level more than double the RBA’s target of 2 to 3 percent.

This would be a big jump from the high rate of 6.1 percent in two decades in the year to June.

Excluding the one-off effect of the GST introduction, this was the highest consumer price index since 1990.

In the 30-day interbank futures market, spot interest will peak at 3.3 percent in March 2023 and remain above 3 percent through 2023

In the 30-day interbank futures market, spot interest will peak at 3.3 percent in March 2023 and remain above 3 percent through 2023

Inflation in Australia is now the highest since the early 1990s and is expected to peak at a faster rate than previously thought, the RBA said.

Nevertheless, the Reserve Bank now expects inflation to moderate to 6.25 percent in June 2023, falling to 4.25 percent in December 2023, 3.5 percent in June 2024 and 3 percent in December 2024.

“This moderation is expected to happen more slowly than previously believed as higher energy costs partially offset declines in other input costs resulting from the reduction in supply chain pressures,” the RBA said.

All major banks expect the RBA to raise interest rates again by another 50 basis points, or half a percentage point, in September, with inflation expected to hit a new 32-year high later this year.

This would push the cash interest rate to a seven-year high of 2.35 percent.

Three of the four major banks – Commonwealth Bank, ANZ and NAB – expect the Reserve Bank to continue raising interest rates through November, while Westpac predicts the hikes will continue through February 2023.

The 30-day interbank futures market has peaked at 3.3 percent in March 2023 and will remain above 3 percent in 2023.

ANZ’s spot interest rate hit a 10-year high of 3.35 percent in November, while Westpac’s spot rate is at that level in February 2023.

Reserve Bank governor Philip Lowe repeatedly promised in 2021 that interest rates would not rise

Reserve Bank governor Philip Lowe repeatedly promised in 2021 that interest rates would not rise “at the earliest” until 2024, but in May he raised interest rates for the first time since November 2010 after the Russian invasion of Ukraine lowered the average price of gasoline. pushed above $2 per liter (pictured is a Sydney gas station in March)

The RBA considers 2.5 percent a neutral spot rate and CBA has a peak of 2.6 percent spot rate in November, compared to NAB’s 2.85 percent.

The Reserve Bank has revised its unemployment outlook and predicts the unemployment rate will fall from its current 48-year low of 3.5 percent in June to 3.25 percent in December.

All of Australia’s big four banks – the Commonwealth Bank, ANZ, Westpac and NAB in that order – announced Thursday that they would pass the latest increase in the RBA.

The latest increase means that a borrower with an average mortgage of $600,000 will see their monthly repayments increase by $169 to $2,827 from $2,658.

What an interest rate hike of 0.5 percentage point means for borrowers?

$500,000: $141 up from $2,215 to $2,356

$600,000: $169 up from $2,658 to $2,827

$700,000: $197 up from $3,101 to $3,298

$800,000: $225 up from $3,544 to $3,769

$900,000: $253 up from $3,987 to $4,240

$1,000,000: $281 up from $4,430 to $4,711

Increases based on the Reserve Bank’s spot rate rise from 1.35 percent to 1.85 percent, pushing the popular Commonwealth Bank floating rate from 3.39 percent to 3.89 percent

Leave a Comment