Finder regularly surveys 40+ economists and property experts to forecast the RBA's next cash rate decision and get insights into the future of the Australian economy. Here are the most recent cash rate predictions.
The fall in the October CPI, though small, will probably see the Bank sit tight in December. There is perceptible slowing of the economy, to the extent no more hikes may be needed, although a further hike can’t be ruled out. With the slowdown becoming more pronounced in the second half of 2024, September May see a cut.
I'm responding to this survey ahead of the release of the October monthly CPI, but I don't think the RBA will have been surprised by anything that has happened since the November meeting or will happen in the lead-up to the December meeting. As the minutes of the Novembe meeting make clear, the meeting in February next year is 'live' if the December quarter CPI again exceeds expectations: but otherwise I think the RBA could be 'on hold' throughout 2024.
Inflation remains still too high, highlighted by hawkish RBA communique last week. This means unless Q4 inflation data in late Jan surprises to the downside, a rate hike in early February is likely on the agenda.
The Q3 CPI data raised enough concerns about inflation for the RBA to reluctantly resume the hiking cycle. We don't see a single hike as being enough to allay their concerns given the breadth of underlying inflation pressures. The board could wait until February for another CPI print. But they would be better off cracking on with the job in December.
Even with the surprise lower inflation for October, the RBA will want to ensure domestic policy is working to bring services inflation down. I think they will raise rates this month and have signaled that the economy is doing well enough to handle a higher rate. But weak retail sales and lower inflation, if continued, will mean they can pause in February.
The lower-than-expected October print is an early Christmas present for households and businesses. Combined with the monthly fall in retail sales through October, it is clear that higher interest rates are quelling demand and—by extension—inflation. That should be enough to save the Reserve Bank Board from having to be the Grinch of Christmas when it meets next week.
Inflation remains above the RBA's target band and could potentially remain elevated for an extended period due to the impact of rising rents, geopolitical tensions and the depreciating Australian dollar. There is inconclusive evidence as to the extent of the dampening impact of monetary tightening on consumption. Moreover, house prices appear to have significantly decoupled from incomes and shrugged off the rate increases to date.
Inflation is declining. Other domestic and global indicators also project a slowdown in the Australian economy. However, immigration inflow remains high, creating an upward pressure on prices in the short run.
CPI inflation is still high (4.9%). It is way above the RBA's targeted range: 2-3 %. The holiday shopping season is coming. Also, given that the RBA is not meeting in January, they should hike in December as a precautionary measure.
The RBA has clearly indicated in their last statement on monetary policy in November that inflation must be squashed and are likely to pull the trigger again in early 2024 if the trend line for underlying inflation is too slow to get back under 3%.
The tightening bias is intact, but the RBA should keep rates on hold in December. Next year the risk remains for one more increase as quarterly CPI data is released- most likely in May. Rate cuts are expected in 2025.
The monthly CPI indicator will give the RBA a level of comfort that they don't have to increase the cash rate in December. The February meeting is certainly live and the decision will be dependent on how the December 2023 quarter CPI data looks upon its release.
The surge in Australia’s inflation in 2022 lagged other advanced countries, and its decline will lag the falling rates elsewhere. The RBA has tightened sufficiently to gradually achieve its inflation target range. It should now hold until mid-2024
Michelle Bullock has made no secret of the fact that she won’t be scared to increase rates if inflation doesn’t come down. Her stated view is that inflation hurts everybody but rate rises only hurt one section of the community. But, having said that, inflation did come down last week so the trend is in the right direction. Given the pressure on household budgets which will happen when the Christmas bills arrive in January, I think they will hold and adopt a wait-and-see attitude.
After last month's forecasts indicating both HOLD and RAISE decisions, this month, they settled quite firmly on HOLD. The level of 4.35% is likely to stay unchanged by the second quarter of next year. This seems in line with Michele Bullock's communication, although the domestic sources of inflation talk could indicate otherwise. My forecasts are available at: forecasting-cash-rate.github.io
While recent RBA commentary has been hawkish it lacks the sense of urgency seen prior to the November meeting and since then we have seen softer data for retail sales, home prices and inflation so there is no "smoking gun" to justify another hike.
Despite the RBA's observation that Australia's inflation rate is home grown i.e. not driven by international factors, the current rate of 4.9% is well below expectations of around 5.2%. Even though items like food and energy costs are still rising, I think it unlikely the RBA will increase the official cash rate in December because there is no need to do so right now. Consumer spending is slowing and belts are tightening - increasing the cash rate will probably do more harm than good. If inflation ticks up, you should expect a rate rise in Feb 2024
Inflation continues to ease, as indicated by the latest monthly CPI data, with the effects of previous rate rises beginning to impact households. The upcoming release of quarterly CPI data at the end of January 2024 will be crucial in determining whether interest rates have reached their peak.
I expect that the Reserve Bank will keep the cash rate on hold at its last monetary policy meeting for 2023. The Australian Bureau of Statistics’ monthly CPI indicator rose 4.9% in the 12 months to October, down from the previous month and well below the peak of 8.4% in December 2022. Hopefully this gives households some much-needed breathing room.
The October CPI data showed a sharper-than-expected fall in inflation which will hopefully provide the RBA the room it needs to leave the cash rate unchanged and enable people to come to terms with household budgets which have had to adjust considerably in recent times.
RBA needs to play catch up following 5 premature rate pauses from May to October
What is the official cash rate?
One of the Reserve Bank's primary roles is setting monetary policy for the Australian economy. This involves setting the cash rate (or to use its full name, the official cash rate target).
At a technical level, the cash rate is actually the interest rate banks pay for borrowing money from each other overnight. Banks use this to manage liquidity and issue funds as needed.
Australian banks can borrow and deposit money with the RBA at just below the current cash rate target.
How the official cash rate target affects interest rates
But for the average Australian consumer, the cash rate is really useful as a broad benchmark for the interest rates on home loans and savings accounts. A high cash rate makes borrowing money more expensive and sees home loan repayments rise.
A low cash rate makes it cheaper to borrow money. This boosts borrowing and spending.
How has the cash rate changed over time?
The Reserve Bank adjusts the official cash rate target over time in response to various economic data, including:
The unemployment rate
Global economic factors
The cash rate stayed at the then record low of 1.50% from 2016 to 2019, when the RBA lowered it further in response to low inflation and slightly higher unemployment.
Then as the Covid-19 pandemic began to hurt the Australian economy the RBA dropped the cash rate even further. This was to make borrowing cheaper and stimulate a struggling economy. The cash rate hit the record low of 0.10% during this time.
Now, with inflation soaring the RBA has lifted the cash rate very quickly to try to slow demand and curb price rises.
The graph on the left below shows movements in the official cash rate over time. And the graph on the right shows the market's lowest home loan rates. You can see how the market responds by raising or lowering rates broadly in line with the RBA's decisions.
How does the RBA's cash rate decisions affect your finances?
The RBA can do 3 things with the cash rate: Raise, lower or hold the cash rate at its current level.
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Enter your loan amount, current interest rate and the latest cash rate increase to quickly estimate how much your monthly repayments will increase.
Example: how changes to the cash rate can change your loan repayments
You have a $450,000 home loan with a variable interest rate of 5.00%. It's a 30-year loan term with principal-and-interest repayments.
Your monthly repayments are $2,416.
⬆️ If the cash rate rises by 25 basis points your interest rate would increase to 5.25%. Your monthly repayments would now be $2,485. This would cost you an extra $69 a month or $828 a year.
⬇️ If the cash rate decreases by 25 basis points your interest rate would fall to 4.75%. Your monthly repayments would now be $2,348. This would save you $68 a month or $816 a year.
More questions about the RBA cash rate
Lenders are free to change interest rates on their products whenever they want. The cash rate is a big influence on rates, but there are many other factors. This includes a lender's own funding costs, the amount of deposits the lender has and how competitive it wants to be to attract new customers.
The RBA changes the cash rate target based on a range of factors including inflation, the performance of the Aussie dollar, unemployment, the housing market, and Australia's Gross Domestic Product (GDP).
For example, if inflation rises above the target rate it means that Australians are spending their money too freely and prices are increasing too rapidly. But if the RBA raises interest rates to make it more expensive to borrow money, the economy will settle and price increases will slow down.
Conversely, the RBA will drop interest rates if inflation is too low and the economy is stagnating, encouraging more Australians to spend more money and stimulate economic growth.
The Reserve Bank of Australia is the country's central bank. The RBA's monetary policy has three key objectives which are set out in the Reserve Bank Act 1959:
The stability of the currency of Australia.
The maintenance of full employment in Australia.
The economic prosperity and welfare of the people of Australia.
Setting the official cash rate is one of the bank's key tools to influence monetary policy, inflation and the broader Australian economy. The bank's board meets on the first Tuesday of every month except January to set the cash rate. The RBA will either cut, raise or hold the cash rate.
The RBA's board of governors typically meets 11 times a year, on the first Tuesday of every month except January. It is here that the board makes a decision on the official cash rate target, which it announces at 2:30pm that day.
Starting in 2024, the RBA board will meet 8 times a year to decide the cash rate level. This means fewer changes to the cash rate than in previous years.
However, the RBA can alter the cash rate at any time. This is rare, but can happen. In March 2020, in response to the onset of the COVID pandemic, the bank cut the cash rate twice. Once at the scheduled meeting and then again mid-month at a special emergency meeting.
Check out more RBA news and Finder's RBA survey press releases
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206) and a Tier 1 Generic Knowledge certification (RG 146).
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