The Reserve Bank of Australia (RBA) has kept interest rates on hold at 4.35 per cent at its August 2024 meeting, but stressed that monetary policy will need to be “sufficiently restrictive” until it is confident inflation is moving sustainably towards the target 2-3 per cent range.
RBA Governor, Michele Bullock, said that while inflation had fallen substantially since its 2022 peak, it was still “some way” above the midpoint of the target range.
“In underlying terms, as represented by the trimmed mean, the CPI rose by 3.9 per cent over the year to the June quarter, broadly as forecast in the May Statement on Monetary Policy (SMP),” she said.
“But the latest numbers also demonstrate that inflation is proving persistent.
“In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters.
“And quarterly underlying CPI inflation has fallen very little over the past year.”
Ms Bullock said the economic outlook remained uncertain and returning inflation to target was proving “slow and bumpy”.
“The central forecasts set out in the latest SMP are for inflation to return to the target range of 2–3 per cent late in 2025 and approach the midpoint in 2026,” she said.
“This represents a slightly slower return to target than forecast in May, based on estimates that the gap between aggregate demand and supply in the economy is larger than previously thought.
“In part, this reflects an increase in the forecast for domestic demand.
“But it also reflects a judgement that the economy’s capacity to meet that demand is somewhat weaker than previously thought, evidenced by the persistence of inflation and ongoing strength in the labour market.”
Ms Bullock said there was significant uncertainty surrounding economic forecasts, with upside risks to inflation due to high unit labour costs and persistent inflation in the services sector, despite wages growth peaking but remaining above sustainable levels given trend productivity growth.
Economic momentum is weak, as indicated by slow GDP growth, rising unemployment, and business pressures, with potential risks of slower-than-expected household consumption impacting output growth and the labour market.
Globally, uncertainties persist regarding the Chinese economy, monetary policy effects, and geopolitical tensions, contributing to volatility in financial markets and a depreciating Australian dollar.
Ms Bullock said returning inflation to target remained the RBA’s highest priority.
“Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range,” she said.
“Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.
“Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.
“The Board will rely upon the data and the evolving assessment of risks to guide its decisions.
“In doing so, it will continue to pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.”
David Edwards – First National Real Estate
First National Real Estate Chief Executive Officer, David Edwards, said the RBA’s decision would be a welcome relief for many Australians, although perhaps not a surprise.
“Underlying inflation has fallen to 3.9 per cent, there are fears of a US recession, and yesterday’s stock market routing might signal tougher times ahead,” he said.
“Whereas some economists held expectations that the RBA might cut rates by February 2025, it seems there is growing optimism that we could see a rate cut as early as November this year.”
Mr Edwards said the real value of goods and services produced per person had been falling, and over the past two years average real income had fallen by 8 per cent.
“That equates to about $5000 per year and won’t be restored by the Stage 3 tax cuts, the energy rebate, or increased rent allowance for people on pensions or benefits,” he said.
“Consequently, our agents have observed cautiousness amongst buyers and a ‘wait and see’ approach from vendors, which explains the current nationwide shortage of stock.
“It’s fair to say that the latest market volatility has lifted expectations that the RBA will now keep rates on hold, and this also serves as a reminder of the value of bricks and mortar as part of any investor’s portfolio.”
But Mr Edward acknowledged the fight against inflation was far from over and the RBA could still lift rates to 5 per cent if inflationary pressures persisted.
“Such a move would potentially temper buyer activity, but we would anticipate the property market will remain robust if that is the case, underpinned by moderate to strong demand, employment security and the country’s housing shortage,” he said.
“Despite a possible decline in immigration levels in the coming year, our historically low unemployment rate and significant wage growth since 2021 are likely to sustain sufficient confidence to maintain a stable market.
“Overall, although price growth might decelerate, we anticipate continued increases in the Australian property market.”
Thomas McGlynn – BresicWhitney
BresicWhitney Chief Executive Officer, Thomas McGlynn, said the RBA’s decision reflected its “cautious approach” to monetary policy as it monitored the economic landscape.
He said holding the cash rate at 4.35 per cent, the sixth consecutive rate hold since November 2023, also provided a “moment of stability” for the real estate market amidst fluctuating economic conditions.
“Market movements occur so rapidly these days that a single rate increase or decrease only impacts the market briefly; significant changes are usually seen with consecutive movements,” Mr McGlynn said.
“Currently, we are not in a phase of rapid consecutive rate changes, allowing the market to operate and adjust more naturally.
“Spring arrived early for the Sydney property market in 2024, with healthy listing numbers bringing forward activity in July, a traditionally quieter period.
“This earlier than anticipated start to the industry’s peak selling period has set the stage for strong opportunities for both buyers and sellers in the months ahead as values across Sydney remain relatively stable.”
Mr McGlynn said both buyers and sellers stood to benefit from the rate hold.
“Buyers can proceed with more confidence, and sellers will find reassurance in the market’s stability, resulting in a balanced marketplace where price negotiations can happen with greater certainty,” he said.
“Interestingly, the interest rate rises to date do not appear to have significantly affected people’s ability to buy property in Sydney.
“Many potential buyers still have substantial savings, and those who own property in Sydney often possess significant equity.
“This financial buffer means that the impact of rate changes is less pronounced for these buyers, who continue to have considerable buying power.”
Mr McGlynn said first-home buyers and those trying to re-enter the market may face more challenges, but those who have been in the market for some time, even just five years, have likely built up substantial equity.
“This equity provides a cushion, allowing them to weather economic shifts more comfortably,” he said.
“Overall, the RBA’s decision to hold rates steady creates confidence among buyers and sellers, encouraging them to make decisions with greater assurance.
“As the market adjusts to this period of stability, we expect more measured and and strategic decisions among buyers and sellers for the second half of 2024.”
Nerida Conisbee – Ray White Group
Ray White Group Chief Economist, Nerida Conisbee, said mortgage holders would breathe a sigh of relief that the cash rate didn’t rise today, the more negative news was that the prospect of a rate cut was still some time away.
She said there were three main reasons the RBA kept rates on hold despite inflation rising.
“The main reason is that inflation came in only slightly higher than expected,” she said.
“The trimmed mean inflation rate came in at 3.9 per cent, only slightly more than RBA forecasts (3.8 per cent) and lower than market expectations (4 per cent).”
Ms Conisbee said the second reason was that Australia is not in a recession and the economy is looking weak.
“GDP growth was just 0.1 per cent in the March quarter, less than the also weak 0.3 per cent in the December quarter,” she said.
“We will not get June quarter data until next month, however it is possible the economy will shrink in that time period.
“The third reason is that many of the expenditure items seeing high rates of growth within the inflation time series will not necessarily be impacted by higher rates, and some may in fact become worse.
“For example, automotive fuel prices growth accelerated in the June quarter, driven by rising conflict in the Middle East and continued cuts by OPEC.
“An increase in rates may impact demand for fuel marginally however it will be no match for supply side factors.”
Ms Conisbee said rental increases were more problematic and continued to be a major driver of inflation.
“Increases in rents are being driven by a lack of rental homes,” she said.
“Higher rates discourage investment in housing and the amount of new development.”
Ms Conisbee said at the start of the year, the market was looking at October for a rate cut but that was now pushed out.
“Now, the timing for a cut is June 2025,” she said.
“Forecasts and market outlooks can of course change quickly but for now Australia is an outlier in terms of the timing of its cuts.
“Most major economies are now cutting rates.”
Ms Conisbee said the Bank of England cut rates last week and the US was set to move next month.
“The jobless rate in that country hit its highest level in three years last week and this sparked speculation that rate cuts could come in a lot quicker than previously expected,” she said.
“These countries will join Switzerland, Sweden, the European Union and Canada which were the first to move.”
Mathew Tiller – LJ Hooker
LJ Hooker Group Head of Research, Mathew Tiller, said today’s rate hold would likely boost what is already expected to be a busy spring property market.
He also said the RBA would most probably keep rates on hold for the rest of the year, remaining cautious despite stubborn inflation and an unexpected softening of the employment market.
“Looking ahead, the RBA is likely to maintain the current cash rate for the remainder of 2024 which will give both buyers and sellers confidence,” he said.
“We expect to see house prices continue their upward trend as buyer demand remains steady.
“However, the pace of growth is expected to moderate as listings continue to rise into a busy spring season.”
Mr Tiller said there had been recent speculation that RBA could have raised rates today, or in the near future and he credits that with contributing to a surge in property appraisals they network has conducted over winter.
“These appraisals have likely included homeowners and highly leveraged investors considering their options, including downsizing their mortgage in the face of ongoing high interest rates,” Mr Tiller said.
“There is not going to be a wave of forced sales because strong capital gains and equity allow those sellers to become buyers.”
Mr Tiller said more affordable properties remained in highest demand, driven by a lift in investor and first-home buyer activity.
Property markets in Western Australia, South Australia and Queensland continue to outperform the rest of the country, although an increase in listing numbers has started to show signs of moderation.
Strong auction clearance rates have continued during the past month, averaging above 65 per cent in Sydney and 60 per cent in Melbourne, and are further evidence of buyer demand.
“There are plenty of incentives this spring for people who have been considering selling to take action,” Mr Tiller said.
“Demand remains high due to an overall below-average amount of listings on the market and a lack of new supply.
“The market is relying on existing homes to be listed to provide any stock for people to buy and that will keep price growth stable.”
Anthony Webb – Belle Property
Belle Property Head of Victoria, Anthony Webb, said the RBA’s decision today would create confidence in the property market.
“Interest rates remaining unchanged for the month of August is good news, particularly as we get closer to the spring selling period,” he said.
“Usually, we would be listing the spring campaigns at this time, but uncertainty has caused clients to hold off.
“A pause in interest rates will give buyers the confidence they need to bring their properties to market.”
Mr Webb said stock levels were tight at the moment, particularly in the CBD.
“The closer you get to the city the less stock there is at the moment, so this steadying will encourage people to put those properties on the market,” he said.
“As we push further out of the city, what we are finding is that there is excessive stock with less movement from buyers.
“I believe interest rates being on hold will help boost buyer confidence and stimulate activity in the real estate market this spring.”
Cameron Kusher – PropTrack
PropTrack Director of Economic Research, Cameron Kusher, said today’s pause arrived despite persistent inflation.
“The job is certainly not done on inflation, it is still too high and rising at too fast of a pace to bring it into the target range,” he said.
“While we should remain cautious to the prospect of interest rates rising if inflation doesn’t slow, economic data from the US published last week showed a significant weakening of the labour market and heightening expectations of an economic slowdown in the US.
“This could reduce the likelihood of further interest rate rises here and potentially result in rates being cut sooner.”
Mr Kusher said there had been some speculation that the RBA may have increased the cash rate at today’s meeting, however, with the June quarter inflation data being more aligned with expectations, inflationary concerns had been allayed for now.
“The rate of growth in home prices has consistently slowed over the past five months and we continue to see the lowest number of annual dwelling approvals in more than a decade,” he said.
“Despite slowing price growth, more properties are being listed for sale and sales volumes remain robust.
“Stable interest rates are likely to support vendor and purchaser confidence as we head into the busier spring period.”
Graham Cooke – Finder
Finder Head of Consumer Research, Graham Cooke, said 81 per cent of experts in its panel had correctly predicted a cash rate hold today and mortgage holders were now anxiously awaiting a rate cut.
“Millions of Aussie borrowers are experiencing significant mortgage stress due to the fact that their monthly repayments have blown out so much and so rapidly,” he said.
“They’re waiting with bated breath for any sign of relief from the RBA.
“The good news is our experts say there’s a 56 per cent chance of a rate cut in the next 12 months.
“The bad news is one in three say we will see a rate rise.”
