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Interest rates on hold for fourth month in a row

The Reserve Bank of Australia has kept interest rates on hold at 4.1 per cent for the fourth consecutive month, with new RBA Governor Michele Bullock noting the 12 earlier increases are working.

In her first monetary policy statement as head of the RBA board Ms Bullock said inflation had passed its peak but was still too high.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” she said.

“In light of this and the uncertainty surrounding the economic outlook, the board again decided to hold interest rates steady this month. 

“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”

The interest rate hold comes despite the monthly CPI indicator rising to 5.2 per cent in the 12 months to August, up on the 4.9 per cent recorded in July.

“Inflation in Australia has passed its peak but is still too high and will remain so for some time yet,” Ms Bullock said.

“Timely indicators on inflation suggest that goods price inflation has eased further, but the prices of many services are continuing to rise briskly and fuel prices have risen noticeably of late. 

“Rent inflation also remains elevated. The central forecast is for CPI inflation to continue to decline and to be back within the 2–3 per cent target range in late 2025.”

Ms Bullock said there were also “significant uncertainties” around the outlook, with services price inflation remaining persistent overseas.

Something that could also happen in Australia.

“There are also uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages respond to the slower growth in the economy at a time when the labour market remains tight,” Ms Bullock said.

“The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income. 

“And globally, there remains a high level of uncertainty around the outlook for the Chinese economy due to ongoing stresses in the property market.”

The board also cautioned that more rate rises may be needed if inflation did not fall as predicted.

“In making its decisions, the board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market,” Ms Bullock said. 

Geoff Lucas – The Agency

The Agency Managing Director and Chief Executive Officer Geoff Lucas said today’s interest rate hold was expected but said “increasing forces” pointed towards another increase before any cuts to rates.

Mr Lucas said the latest inflation figures came in higher than expected, largely due to oil and petrol price increases.

“It’s highly likely inflation will stay stronger for longer,” he said.

“The Australian dollar continues to be punished as our interest rates are materially lower than our trading block partners.

“If our rates remain out of sync with the rest of the world, our dollar will continue to depreciate and imports will become more expensive, creating greater imported inflation.”

Mr Lucas said the RBA forecast December inflation rate of 4.1 per cent had been calculated using an oil price of $US80 per barrel but it was sitting 17 per cent higher.

He said residential rents had also continued to rise and they had not fully been included in CPI as they are a lagging indicator.

“There are further inflationary pressures coming down the line and we therefore expect more media around the possibility of an upcoming 25 basis point rise,” Mr Lucas said.

“Strong employment figures are a positive for the Australian economy indicating a ‘less hard’ or even soft landing. 

“The chance of a recession remains, however the ‘R’ word is not necessarily as bad as it sounds. 

“It is simply a technical term for two consecutive quarters of negative growth. That may be needed for a reset.” 

Mr Lucas said there had been a large increase in listing supply in the eastern states and a small reduction in the number of bidders at auction. 

“Demand still outstrips supply – in most markets – just,” he said.

“This shift will continue as supply overtakes demand and prices stabilise with some small falls in some markets. 

“This is positive as it leads to less price volatility and a safer transactional environment.”

Mr Lucas said supply in Western Australia was well below average, with extremely low days on market and robust prices.

“While we are still seeing national property price growth, it should be noted that the rate of price growth has reduced from 3 per cent in the June quarter to 2.2 per cent in the September quarter – that’s a 36 per cent fall in the rate of growth,” he said.

“We are only one-third of the way through home loan borrowers coming off fixed rates and onto variable rates. 

“This, coupled with the cost of living increases, means we are likely to see more properties coming to market. 

“This week’s RBA minutes detailing stories of middle-class Australians unable to meet costs of living reinforce the financial stress being felt by consumers and we expect to see more distressed sales in the coming months.”

Manos Findikakis – Agents’Agency

Agents’Agency CEO Manos Findikakis said today’s interest rate hold was expected and he didn’t expect to see any further increases in the foreseeable future.

“We’ve seen a pickup in the market and it’s bringing more certainty to the market, there’s no question about it” he said.

“I’m a betting person and I’ll say there won’t be any further increases.

“Hopefully it stays stable for the next six to 12 months and we see some stability in the marketplace.

“That way, the longer they keep interest rates on hold then hopefully inflation comes back to that 2-3 per cent band they want it to.

“Then we can see some decreases thereafter, but I think the comforting thing right now is it’s giving people some certainty so they can make informed decisions whether they are buying or selling.”

Mr Findikakis said listings had picked up across the board, but had not exceeded traditional spring levels.

“It’s not any different to what we’d expect normally, come spring,” he said.

“While it’s not the craziness of two years ago, it’s certainly looking like a more balanced market where three to six per cent of any marketplace turns over in any particular time of year in a balanced market.

“That’s what we’re seeing.”

Thomas McGlynn – BresicWhitney

BresicWhitney CEO Thomas McGlynn economic forces were not the only thing to impact the real estate market.

“We continue to see the speed at which the Sydney market can pivot in either direction,” he said.

“ While conditions are invariably shaped by economic policy, factors like listing volumes and seasonality have been the dominant forces in the marketplace in recent months.

“September in particular saw this take effect, with us signing almost 150 new listings, and for the quarter that figure is sitting at over 400. 

“These are the material conditions that influence how buyers and sellers approach the market and in the last month we’ve seen an increase in buyers negotiating on not just one, but two or three properties at the one time.”

Mr McGlynn said September quarter house price growth had dropped to its smallest increase since February (2.2 per cent) and October would set the foundation for activity to Christmas and into 2024.

“While it’s possible we will see another interest rate increase in that time, it’s obvious that the RBA is not only near the end of its tightening cycle, but is also aware of the need to keep a steady hand due to its recent change in personnel,” he said.

Mathew Tiller – LJ Hooker

LJ Hooker Head of Research Mathew Tiller said today’s interest rate decision would give buyers confidence and fuel a rise in attendance at auctions and open homes.

He said while headline inflation had increased to 5.2 per cent, it had mostly been attributed to rising fuel costs, propelled by global supplies, and the board likely considered the headline inflation a “blip on the radar”.

“The RBA is watching the economic data closely and has indicated it won’t rule out further cash rate hikes if the downward trend in inflation slows or reverses,” Mr Tiller said.

“Today’s decision gives buyers with pre-approvals the confidence to table offers and bid at auction knowing they can meet serviceability levels of their loan.

“Sellers are responding to the pause in rate rises, coming to market to capture buyers’ confidence.”

Mr Tiller said new listings had picked up with the start of spring, but total listings remained well below average.

“Auction volumes were softer last weekend due to the long weekends in most states and territories, but volumes will rebound throughout the rest of October,” Mr Tiller said.

While rents have been increasing, there is evidence some investors are looking to sell as the gap between income and expenses widens. 

“Investors looking to sell up will be welcomed news for first home buyers who generally tend to be purchasing in the same market,” Mr Tiller said. 

Nerida Conisbee – Ray White

Ray White Group Chief Economist Nerida Consibee said inflation increasing in August reminded us we still have some way to go and there was still potential for more interest rate rises.

“For now, market pricing for the peak continues to change from week to week, as does the timing of cuts,” she said.

“Globally we are continuing to see rates on hold however there remain concerns around inflation remaining sticky. 

“In the US, the Federal Reserve left interest rates on hold this month after inflation increased slightly but did warn that it would keep increasing if need be. 

“Nevertheless, markets are expecting cuts to start towards the end of next year.”

But Ms Conisbee said inflation in the UK was falling, despite stubborn rising power prices. 

“The Bank of England maintained rates, ending a run of 14 consecutive rate rises even though inflation remains a lot higher than other countries,” she said.

“There are some exceptions where rate rises will continue at a rapid rate. 

“Turkey’s inflation rate is now at 59 per cent with interest rates at 25 per cent after a failed attempt to solve inflation problems by cutting rates last year when inflation was rising rapidly. “Argentina’s inflation is at 124 per cent and interest rates are at 118 per cent after the government resorted to printing money to try to provide economic support.”

Eleanor Creagh – PropTrack

PropTrack Senior Economist Eleanor Creagh said subsiding momentum in economic activity, underlying inflation and consumer spending had eased pressure on the RBA to continue lifting interest rates.

“According to the consumer price index, inflation rose 5.2 per cent in the 12 months to August 2023, up from 4.9 per cent in July, indicating that the disinflationary pulse stalled in August. 

“After excluding volatile items, the annual rise in underlying inflation of 5.5 per cent in August showed a continued moderation. 

“Despite the lift in August, inflation is expected to continue moving lower with the weakening in household consumption and slowing economic activity.

“The significant increase in mortgage servicing costs, together with cost-of-living pressures, has seen consumer spending slow and weigh on economic activity. 

“Conditions are expected to further soften in the coming months.”

Ms Creagh said the full impact of previous rate rises was still to be fully felt and as long as inflation moved lower, interest rates had likely reached their peak.

“The full impact of monetary tightening to date is yet to be felt and we’re likely to continue to see inflation moving lower as a result,” she said.

“Unless there is a shift in the disinflationary outlook, it’s likely the peak in the cash rate is already in for this monetary policy tightening cycle.

“National home prices have now reversed last year’s price falls in their entirety, with September marking the ninth consecutive month of national home price growth. 

“ One driver of the recovery in home prices this year has been the subdued listings environment, which has seen buyers competing for fewer properties. 

“Home prices have also been underpinned by record levels of net overseas migration, a challenged rental market and an emergent housing shortfall.

“The decision by the Reserve Bank to continue holding the cash rate steady in October will underpin buyer and seller confidence for the spring selling season.”

Ms Creagh said with population growth rebounding strongly and a shortage of new homes being built, property prices were expected to continue to rise and even reach new records.

Lachlan Turner – Turner Real Estate

Turner Real Estate Managing Director Lachlan Turner said the property market would welcome today’s pause in interest rates.

“After a very flat winter, there is starting to be some signs of uplift in the sales market,” he said. 

“More clients are moving towards selling and buyers are still very active in the market.

“Now that the economy is starting to stabilise, the RBA’s decision to pause rates will give buyers and sellers increased confidence in the market. 

“The past few months have seen people nervous about their budgets but the curve appears to be flattening and the property market will welcome this pause in rates.”

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.