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RBA keeps cash rate on hold at 4.35 per cent

The Reserve Bank of Australia (RBA) has kept the cash rate on hold at 4.35 per cent at its June meeting, but hasn’t ruled out a further hike if sticky inflation continues to persist.

The cash rate has not changed since November 2023, with many experts now tipping it won’t until 2025.

RBA Governor Michele Bullock said the Board’s “highest priority” was returning inflation to the target 2-3 per cent range in “a reasonable timeframe”.

“This is consistent with the RBA’s mandate for price stability and full employment,” she said.

“The Board needs to be confident that inflation is moving sustainably towards the target range. 

“To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

“Inflation is easing but has been doing so more slowly than previously expected and it remains high. 

“The Board expects that it will be some time yet before inflation is sustainably in the target range.”

Ms Bullock said over the year to April, the monthly CPI indicator rose 3.6 per cent in headline terms, and by 4.1 per cent excluding volatile items and holiday travel, which was similar to its pace in December 2023. 

“Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” she said.

“But the pace of decline has slowed in the most recent data, with inflation still some way above the midpoint of the 2–3 per cent target range.”

Ms Bullock said the economy continued to experience excess demand with high domestic cost pressures for both labour and non-labour inputs. 

Labour market conditions have eased but remain tighter than what is needed for sustained full employment and target inflation. 

Wages growth has peaked but remains above sustainable levels considering trend productivity growth.

Ms Bullock said recent data revisions indicated stronger consumption over the past year than previously suggested.

“At the same time, output growth has been subdued, and consumption per capita has been declining, as households restrain their discretionary expenditure and inflation weighs on real incomes,” she said. 

She said the economic outlook remained uncertain and returning inflation to target was unlikely to be smooth.

“The central forecasts published in May were for inflation to return to the target range of 2–3 per cent in the second half of 2025 and to the midpoint in 2026,” Ms Bullock said.

“Since then, there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth. 

“At the same time, the revisions to consumption and the saving rate and the persistence of inflation suggest that risks to the upside remain.”

Ms Bullock said recent budget outcomes may also impact demand, but federal and state energy rebates would temporarily reduce headline inflation. 

“The persistence of services price inflation is a key uncertainty,” she said.

“Also, although growth in unit labour costs has eased, it remains high. 

“Productivity growth needs to pick up in a sustained way if inflation is to continue to decline.”

Ms Bullock said real disposable incomes were stabilising, and an increase in wealth due to rising housing prices was expected to support consumption growth. 

However, risks remain if household consumption grows slower than expected. 

Global uncertainties, including geopolitical conflicts, may impact supply chains despite improvements in the Chinese and US economies and some easing by central banks.

 She said the Board needed to remain “vigilant to upside risks to inflation”. 

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out,” she said.

“The Board will rely upon the data and the evolving assessment of risks. 

“In doing so, it will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. 

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

Geoff Lucas – The Agency

The Agency Managing Director and CEO Geoff Lucas. Photo: The Agency

The Agency Managing Director and Group Chief Executive Officer Geoff Lucas said the RBA’s decision was largely expected given the most recent CPI data, especially services inflation, which is proving hard to reduce.

“We continue to expect there will be no reduction in interest rates in 2024,” Mr Lucas said. 

“RBA policy is, of course, dependent on most recent economic data, and whilst we believe interest rates will remain steady this year, there remains a risk that the next move could be up if inflationary pressures were to continue to persist. 

“National rent increases are currently annualised at 8.5 per cent and are expected to continue to rise in the short term. 

“This, along with the stage 3 tax cuts (estimated to be the equivalent of some 0.7% in interest rate cuts) from 1 July, are just two factors contributing to inflationary pressures.”

Mr Lucas said federal and state government spending, especially on infrastructure, would continue to exacerbate labour shortages and construction costs would act to further hamper efforts to reduce inflation in the short term.

“The most recent unemployment data indicates an underlying strength in the economy, notwithstanding cost of living pressures impacting consumer sentiment,” he said. 

“The RBA will be looking for signs of a material uplift in unemployment before considering any future rate cuts. 

“To date, the national unemployment rate of 4 per cent is demonstrably lower than pre COVID.”

Mr Lucas said the property market continued to defy cost of living pressures and 13 interest rate increases since May 2022. 

“The most recent quarterly price growth, extrapolates to an annual growth of 8.4 per cent, eclipsing last year’s annual growth of 8.1 per cent,” he said.

“We continue to believe this annualised rate will soften between now and the end of 2024 as the lagged impacts of interest rates and cost of living continue, and when pandemic cash support surpluses are beginning to become exhausted. 

“A continuation of the current interest rate settings is likely therefore to see a mild softening in the rate of growth nationally, however as we’ve seen there is record variability amongst capital cities with Perth annualising 24.8 per cent growth, Adelaide 18 per cent, Brisbane 16,4 per cent, Sydney 5.6 per cent and Melbourne down 1.2 per cent.”

Mr Lucas said supply and demand would remain the key drivers of property prices, especially with limited interest rate changes. 

“With Perth and Adelaide listings more than 40 per cent below the five year average, and Brisbane down 34 per cent, we expect these markets will continue to outperform in terms of price growth for the balance of 2024,” he said. 

David Edwards – First National

First National CEO David Edwards. Photo: First National.

First National Chief Executive Officer, David Edwards, said the RBA’s decision today was potentially a welcome reprieve for Australians grappling with rising inflation and increasing mortgage repayments. 

“We’re uncertain as to how the banks may react to this, in the past they’ve made their independent decisions to either put up interest rates even though the cash rate has been put on hold,” he said.

“If I was to try and second guess, I think ongoing cost pressures are obviously continuing to squeeze every household budget.

“Coming the new financial year, July 1, we will get a little bit of welcome relief in terms of income tax cuts and I think what the reserve bank is signalling here is that the battle against inflation isn’t over.

“I’m expecting, hopefully, the banks to hold firm and hold interest rates as they are, rather than taking yet another opportunity to increase interest rates despite the cash rate being maintained.”

Mr Edwards said he was cautiously optimistic that the RBA continuing to hold the cash rate would lead to a rate cut in the not too distant future.

“I also hope that this continued push, in the face of inflation growing, for the reserve bank to hold the cash rate still gives us some hope that we could maybe look to budget for some sort of cash rate and interest rate reduction sometime over the next 12 months,” he said.

In terms of the property market at the moment, Mr Edwards said Australia was living up to its reputation as a multi-speed market.

“In the past, Australia has been described as a two-speed economy, but we’re finding it’s a six, seven or eight speed economy at the moment,” he said.

“There are differences in every state and territory.”

Mr Edwards said Perth’s average days of market was just 14 days, while on the east coast listings were still somewhat lower.

“Even in Victoria, we’re finding the western suburbs very strong,” he said.

“The more traditional suburbs will always sell but there are multi-speed economies even operating within the one state at the moment.”

Nerida Consibee – Ray White Group

Ray White Chief Economist Nerida Conisbee. Photo: Ray White

Ray White Group Chief Economist, Nerida Conisbee, said Australia would soon follow Switzerland, Sweden, Canada and the European Central Bank in cutting rates.

“While Switzerland cut in March, Sweden was the first country in this cycle to cut interest rates following very high inflation,” she said.

“This was of interest but was relatively under-reported, primarily because Sweden, while a successful economy, isn’t necessarily a global economic superpower.

“Global interest rate commentary became a bit more interesting on June 5 when Canada cut interest rates and then the next day the European Central Bank cut.”

Ms Conisbee said with interest rate cuts now occurring the dominant commentary had switched from ‘higher for longer’ to ‘less high for longer’.

“Australia will follow, likely sooner rather than later and increasingly likely this year,” she said.

“This month however, the Reserve Bank of Australia decided to hold.”

Ms Conisbee said while inflation was coming down, it was “sticky”.

“While inflation remains strong, our economy is less so,” she said.

“While we are not likely to head into recession, we are skating very close.

“A recession is defined as two quarters of declining Gross Domestic Product (GDP).

“Our GDP hasn’t declined but the last quarters saw just 0.3 per cent and 0.1 per cent growth.”

Ms Conisbee said a rate cut was still possible this year.

“As we saw in Europe, rates can be cut before reaching the target rate,” she said.

“European inflation is currently at 2.4 per cent and the European Central Bank target is two per cent.

“Even if we don’t hit three per cent on the mark, it is possible that the RBA will cut.

“Unfortunately for many mortgage holders, this cut was not this month.”

Thomas McGlynn – BresicWhitney

BresicWhitney CEO Thomas McGlynn. Photo: BresicWhitney

BresicWhitney CEO, Thomas McGlynn, said the RBA’s decision to keep the cash rate on hold underscored the current trajectory of Australia’s resilient property market. 

“Despite prevailing high interest rates and global monetary easing trends, home values continue to rise across most capital cities, including within a 10km radius of inner-city Sydney,” he said.

“Consumer sentiment, although lower compared to pre-GFC levels, has not deterred property price growth. 

“Sydney’s real estate market stands as a remarkably resilient microcosm, insulated against broader economic fluctuations. 

“This resilience is driven by a unique interplay of factors where property ownership is deeply tied to lifestyle choices and long-term outlook to financial stability and wealth creation.”

Mr McGlynn said during Covid-19 there was a significant shift in how people viewed their homes, particularly in Sydney, where property represents a substantial portion of personal wealth. 

He said this revaluation had since led many to prioritise property investment over discretionary spending on items like electronics and retail goods. 

“The willingness to allocate more of their monthly income towards property underscores the emotional and financial commitment Sydneysiders have towards real estate,” Mr McGlynn said.

“The allure of property ownership extends beyond immediate consumption. 

“Buyers are increasingly factoring in not just the cost of acquisition but also the opportunity cost of not entering the market sooner. 

“This strategic approach is evident across all price points, from mid-range homes to luxury properties where future appreciation potential plays a crucial role in investment decisions.

“Despite the uncertainty surrounding future interest rate movements, the housing market’s outlook for 2024 remains robust, particularly in Sydney.”

Mathew Tiller – LJ Hooker 

LJ Hooker Group’s Head of Research Mathew Tiller.

LJ Hooker Group’s Head of Research, Mathew Tiller, said the rate hold would provide momentum for vendors to list in winter, driven by price growth and strong buyer demand.

He said despite some concerns over persistent inflation, recent economic data shows softening in some parts of the economy, such as reduced consumer spending and lower retail sales.   

The latest economic indicators suggest previous rate hikes were having the desired effect on households and businesses, swaying the RBA to keep the cash rate unchanged. 

Mr Tiller said while auction clearance rates have moderated, they remain above 60 per cent in Sydney and Melbourne, providing evidence of ongoing buyer interest.

“It has been a solid start to the winter property market with sellers feeling comfortable they will receive a good result,” Mr Tiller said. 

“Property prices are still rising, particularly in the more affordable end of the market, driven by first home buyers looking to get out of tight rental markets and investors wanting to capitalise on high yields and rental growth.”

Mr Tiller said mid-year had traditionally been a slower time to sell property, although this trend was changing. 

He said listings numbers were up compared to this time last year and while volume had started to slow in Sydney and Melbourne, it had picked up in tighter capital cities, such as Brisbane and Perth, in recent weeks. 

Mr Tiller said market evidence showed that buyers were out in force, demonstrating that vendors shouldn’t hold off until spring.

“Homeowners are looking to take advantage of 15 months of consecutive price growth making it very attractive to sell now – this also includes those looking to downsize their mortgage by selling and moving to a more affordable property,” Mr Tiller said.

“We are seeing good appraisal numbers but they have been higher than listing numbers – so homebuyers are still weighing up their options and potentially will look to delay selling until what we expect to be a very busy spring market.

“While it remains a seller’s market, there is good news for buyers because an increase in listings means they are starting to see more choice of stock.”

Cameron Kusher – PropTrack

REA Group Director of Economic Research Cameron Kusher
PropTrack Director of Economic Research Cameron Kusher.

PropTrack Director Economic Research, Cameron Kusher, said keeping the cash rate steady at 4.35 per cent reflected the RBA Board anticipating an easing in inflation as the economy, businesses, and consumers continue to adjust to the significant interest rate tightening delivered since May 2022.

“Despite higher-than-expected inflation early in 2024, weak retail sales, slowed economic growth and low consumer sentiment persist,” he said.

“While inflation has not fallen as quickly as expected, the Board anticipates a further decline in inflation by the end of the year.

“The PropTrack Home Price Index showed national home prices hit a new record in June, despite the higher interest rate environment, but it’s worth noting that monthly growth has slowed since the summer selling season in each capital city.”

Mr Kusher said housing demand remained strong due to population growth, tight rental markets, resilient labour market conditions and home equity gains. 

“Coupled with tax cuts on July 1, which will support real incomes and household spending, we expect that property prices will lift further this year,” he said.

“Building activity is at decade-low levels, exacerbated by a lack of new construction, which is creating a chronic shortage of housing. 

“The imbalance between housing supply and demand has offset the higher interest rate environment and deterioration in affordability, fuelling home prices and rents.

“Although rate cuts are now expected in 2025, most still predict the next move will be down. 

“The upcoming June 2024 quarterly inflation data will be a key determinant of whether the Reserve Bank needs to lift rates again or adjust expectations for the timing of an interest rate cut.”

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.