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
Amid high rates environment, is it time to rethink home loan terms?
With interest rates unlikely to change anytime soon - and the prospect of first-time buyers getting a foot hold on the property ladder diminishing by the day - is it time to think about extending the loan terms of mortgages to 35 years?
One financial expert things so ... with the propert safeguards in place.
Chris Foster-Ramsay argues “it represents a bold but measured step towards a more inclusive housing market”.
Read his column which appeared in this week’s Your Money section inside The West Australian ...
The arguments for keeping rates on hold ...
The Reserve Bank of Australia is likely to keep interest rates on hold for several reasons:
- Inflationary pressures: While inflation has been easing, it remains above the RBA’s target range of 2 to 3 per cent. As we’ve heard repeatedly this year, it’s likely to maintain a cautious stance to ensure inflation doesn’t rebound.
- Economic uncertainty: The global economy is facing several challenges, including geopolitical tensions, trade disputes, and the lingering impact of the COVID-19 pandemic. This uncertainty could yet affect Australia’s domestic economy, making the RBA hesitant to make any significant changes to interest rates. It has repeatedly mention geopolitical tensions in past statements on whether to cut rates.
- Housing market: The housing market in Australia has been showing signs of cooling (unless you live in Perth) which could impact consumer spending and economic growth. The RBA may want to avoid further tightening that could exacerbate a slowdown in the housing market.
- Labour market: The labour market in remains relatively strong, with low unemployment rates. The RBA may fear any further increase in rates would risk slowing down economic growth and job creation.
So, for now (and since November last year when it last changed the official cash rate) it’s adopting a wait-and-see approach.
Struggling? Don’t hold your breath for relief anytime soon
There’s an outside chance the Reserve Bank won’t cut interest rates at all in this cycle, according to economists at HSBC.
The warning marks a big change from 12 months ago, when many economists were arguing the RBA would lower rates this year. It’s also in sharp contrast with markets predicting a cut by February 2025
Top officials at the central bank are meeting on Monday and Tuesday and are expected to consider a hike, but ultimately leave rates on hold.
HSBC chief economist Paul Bloxham said the benchmark rate would stay unchanged at 4.35 per cent and reckons a reduction is not likely until the June quarter of 2025.
Read the full story here ...
Originally published on The West Australian
