March Cash Rate unchanged:
The Reserve Bank has held interest rates steady for a third straight meeting, but there are warnings Australia’s unstoppable property market could derail the prospect of a rate cut ‘anytime soon’.
The RBA on Tuesday left the cash rate unchanged at a 12 year high of 4.35%, noting higher interest rates are working to get inflation lower, while the tight labour market continues to ease gradually.
In a media conference after the decision, RBA governor Michelle Bullock played down the prospect of an imminent rate cut, not ruling out one more hike if inflation fails to return to its 2-3% target band in a reasonable timeframe.
The inflation rate still needs to come down, the economist does think that we are on the path to get ourselves back to inflation within the target within the forecast period.
But economists and financial markets see another hike as unlikely, with a consensus view that the cash rate has already peaked.
Market pricing suggests the first-rate cut is expected from late September.
Housing a potential plot ‘twist’
Incoming personal income tax cuts and the May federal budget have been flagged as potential inflation drivers, but HSBC chief economist Paul Bloxham says the housing market is shaping up to be a critical factor in the path for interest rates.
While the RBA does not target house prices specifically, Mr Bloxham said it would not want to fuel a market that is already heating up.
Although some households have come under pressure from higher interest rates, which has boosted listings, housing demand still appears to be strong relative to supply.
Expectations for rate cuts are also fuelling rising housing prices. However, the twist is that the more and faster that housing prices rise, the less likely it is that the RBA will cut rates anytime soon.
He said a tight housing market with rising housing prices and rents is not the typical recipe for rate cuts, forecasting the RBA to remain on hold until at least 2025.
It comes as recent PropTrack data shows a reacceleration of market activity into the new year, with national property prices rising 0.5% in February. Buyer demand is still keeping pace with an increase in supply.
This year has kicked off busily with more homes hitting the market than usual in Sydney and Melbourne, giving buyers more choice.
Demand has kept up with that increase, with many anticipating that interest rates will fall in the second half of 2024, likely providing a positive tailwind for activity.
The decision by the Reserve Bank to hold the cash rate steady in March will maintain both buyer and seller confidence. Looking ahead, the next move for interest rates is likely to be down.
She said home prices are expected to lift further in the months ahead as buyers and sellers feel more certainty around the outlook for interest rates.
While the signs point to a rate cut later this year, there’s no way to predict exactly when a cut might occur. Economists at the major banks anticipate the first interest rate cut could come in the second half of the year as inflation continues to move towards the top end of the 2-3% target range.
Analytics group BIS Oxford Economics estimates homeowners will get almost $700 a month back into their budgets by the second half of 2026, based on forecasts of a 1.75 percentage points reduction in interest rates over 18 months.
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