RBA interest rates: Live updates from the Reserve Bank of Australia’s September board meeting
There’s a scene in an original Star Wars film (it’s Episode IV: A New Hope for those who aren’t George Lucas nerds) where Luke, Han, Leia and Chewie are about to be crushed in a trash compactor on the first Death Star.
The walls are closing in. The rubbish is piling up higher and higher around them as the would-be saviours of the universe try desperately to get a handle on anything to slow the inevitable and live to fight another day.
We’re certain Reserve Bank governor Michele Bullock can sympathise.
The US Federal Reserve last week joined the central banks of Canada, the UK, New Zealand and Europe when it started trimming interest rates, with a bold and higher-than-expected 50 basis-point cut. That’s wall No.1
Wall No.2 started moving weeks before when Treasurer Jim Chalmers accused the RBA of “smashing the economy” with 13 interest rate hikes since early 2022. His predecessor, Wayne Swan, was there to back him in with a blistering attack, saying the board was “punching itself in the face”. He was, he said as if scolding a child, “very disappointed” in the RBA.
Then along came the Greens, who yesterday said they would block key reforms for the central bank unless Dr Chalmers used extraordinary powers to force rates lower. Wall No.3 — though, quite clearly, the one most likely to be condemned for dodgy construction by ill-qualified tradies.
Wall No.4 — the final escape route — is blocked by millions of homeowners who are growing increasingly impatient (and angry) about talk of high-for-longer interest rates that are sapping their budgets and shaking their financial futures. The RBA has one tool at its disposal to beat inflation lower — and those with a mortgage are sick and tired of being the punching bag.
It’s safe to say Bullock and Co. are in a jam. But will they acquiesce? Will they crumble under the pressure?
Don’t count on it.
There’s still plenty of sound arguments against cutting rates. Expect them to be repeated ad nauseum in this afternoon’s press conference after the RBA (likely) announces it’s kept rates on hold at 4.35 per cent.
But listen closely to hear if the verbal assaults of the past few weeks have moved the dial on when it might relent and start pushing rates lower.
With Yoda-like resolve, Bullock is sure to remind us: “Do. Or do not. There is no try.”
May the force be with you.
Key Events
Sign ahead flashes ‘rate cut this way’
The RBA’s decision to yet again leave official rates at 4.35 per cent has left homeowners in limbo, says Deloitte Access Economics partner Stephen Smith.
And expect it to remain that way for some time, he warns.
“There is no doubt the economy is on life support: growth is at 30-year-lows while household consumption has fallen to its weakest growth rate since the September quarter 2021 lockdowns,” Mr Smith said.
“However, high government spending and migration are injecting demand into the economy, meaning the RBA’s hands are tied – the labour market is still too robust to permit them to follow the US Federal Reserve and deliver a rate cut at this time.”
But he points to last week’s data showing migration has fallen from its peak - and will continue to decline - which should ease the pressure in some quarters.
“The fact remains that inflation is on its way down, albeit in an uneven way, with much of the inflationary pressures in the economy occurring on the supply side,” he said.
“We believe this, combined with a slowing economy, will lead to a rate cut early next year.”
Bullock to front the meeting shortly
RBA governor Michele Bullock will front her usual post-board meeting press conference in about half an hour.
Given the political barbs of the past few weeks, expect some pretty direct questions about what she thinks of Chalmers, the Green, Wayne Swan and everything in between.
But also expect her to play a pretty straight bat and focus on the data.
Don’t wait for an RBA rate cut. But should you fix?
Despite another hold on official rates, Compare the Market’s economic director David Koch said savvy refinancers could create their own rate cut.
Research by the comparison site has revealed 18 per cent of Aussies don’t know their interest rate, while 45 per cent had been with the same lender for more than five years.
That could be costing you beccause there’s a 1.2 per cent difference in some of the lowest advertised rates. An owner-occupier with a $750,000 loan could save $595 a month by switching from a rate of 7.24 per cent to 6.04 per cent.
While the deals may be enticing, Mr Koch warned borrowers who lock in a rate now could find themselves worse off if the RBA decides to reduce the cash rate later in the year.
“While these fixed rates south of 6 per cent may seem tempting, if you can afford to hedge your bets, it may be worth waiting for a RBA cash rate cut,” Mr Koch said.
“Fixed home loans are great for shielding you from rate rises, but they will block you from taking advantage of a rate cut.
“Banks won’t reduce their fixed rates unless they think it’s a safe bet for them. The reality is rates could be a lot lower in four years’ time.
“History tells us it’s usually better to remain a bit flexible and consider staying on a variable rate when we’re at the peak of the cycle and rates are widely tipped to go down.
“Even though there wasn’t a cash rate cut today, seeing these fixed rates drop is a really good sign and an indicator one could be coming soon”.
Household spending rising ... but slower than first feared
The RBA had expected household consumption growth to pick up in the second half of the year “as the headwinds to income growth recede”.
But it says this is slower than expected, “resulting in continued subdued output growth and a sharper deterioration in the labour market”.
“More broadly, there are uncertainties regarding the lags in the effects of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while conditions in the labour market remain tight,” it said.
Some sectors still too strong
The RBA said its forecasts published in August were for underlying inflation to return to the target range late in 2025 and approach the midpoint in 2026.
“This reflected a judgement that the economy’s capacity to meet demand was somewhat weaker than previously thought, evidenced by the persistence of inflation and ongoing strength in the labour market,” it said.
“Since then, GDP data for the June quarter have confirmed that growth has been weak. Earlier declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on consumption, particularly discretionary consumption.
“However, growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, remained more resilient.”
The board said wage pressures have eased somewhat “but labour productivity is still only at 2016 levels, despite the pick-up over the past year”.
Rinse and repeat ...
The RBA has dusted off last month’s statement and just changed the date.
It says while “inflation has fallen substantially since the peak in 2022” as higher interest rates work to curb spending, it “is still some way above the midpoint of the 2–3 per cent target range”.
No surprise there.
“Headline inflation is expected to fall further temporarily, as a result of Federal and State cost-of-living relief,” it said in a statement released just minutes ago.
“However, our current forecasts do not see inflation returning sustainably to target until 2026. In year-ended terms, underlying inflation has been above the midpoint of the target for 11 consecutive quarters and has fallen very little over the past year.”
And (as expected) another pause
If you were hoping for interest rate relief, you’ve come to the wrong place.
For yet another meeting, it’s a pause.
Just minutes to go ...
We’re 15 minutes away from the RBA’s call.
If they hold today (as expected) we’ll wait another six weeks before the board meets again on November 4 and 5.
Could it be an early Christmas? Don’t bet on it.
Even by the RBA’s best guess, inflation won’t be back to within target until next year.
Given its hard-line stance to date, it’s unlikely to make any move unless inflation is firmly within that range and it knows it will stay there.
The extraordinary number of mortgage holders at ‘extreme’ risk
New research by Roy Morgan shows there were 1,659,000 mortgage holders (29.5 per cent) at risk of mortgage stress in the three months to August.
That may sound extraordinarily high but it’s actually a decrease of 0.3 percentage points on the July figures after the introduction of the Stage 3 tax cuts increased household income for millions of Australians over the past few months – including many mortgage holders.
The level of mortgage holders deemed at risk is set to fall further over the next few months ... unless the RBA board decides to raise interest rates later this week.
The record high of 35.6 per cent of mortgage holders in mortgage stress was reached in mid-2008.
The number of Australians at risk of mortgage stress has increased by 852,000 since May 2022 when the RBA began its cycle of interest rate increases.
The number of mortgage holders considered at extremely risk is now 1,013,000 (18.6 per cent of mortgage holders) which is significantly above the long-term average over the past 10 years of 14.5 per cent.
The big boom that’s driving up prices
Plenty of economists have warned that enormous growth in public spending has added to inflation pressure.
Westpac senior economist Pat Bustamante has declared this expansion of government could be as significant as the resources investment boom of the 2000s, saying ...
The Australian economy is quietly undergoing one of the largest transitions in modern history, rivalling the structural change driven by the mining investment boom of the 2000s.
We are forecasting public spending to reach 28 per cent of real GDP by the end of 2025, from its pre-pandemic average of 22.5 per cent.
Mr Bustamante said the transition would explain slow productivity growth — although he predicted it would recover.
He also said the lift in public spending had drawn workers away from businesses in sectors including health and construction, pushing up costs.
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