Mozo Money Moves: Sticky inflation, controversial buffers and unsung heroes

Welcome back to Mozo Money Moves, your Friday finance fix covering the latest in pricing changes across the Australian retail banking industry. 

This week, we're unpacking the latest monthly inflation figures, the controversy surrounding the 3% home loan serviceability buffer, the Reserve Bank of Australia (RBA)’s stance on rates and a potential switch up of the RBA’s current board structure.

We'll also explore how savings strategies are shifting as banks readjust deposit rates, and smaller lenders prove they’re the ones to watch when it comes to personal loans.

Let’s get into it!

RBA board structure enroute for a shake-up

Late last night, Parliament passed a Reserve Bank reform bill planning to introduce two separate boards. The reforms, set to take effect in March 2025, are contingent on royal assent of Governor-General David Hurley​. If they pass, they will fundamentally change the Reserve Bank of Australia’s structure. 

The dual board mandate will restructure the central bank so that one board focuses on monetary policy decisions, like setting interest rates, and the other will be responsible for governance oversight. 

“As Australians continue to feel the pressure from rising costs, the impact of these reforms will likely become clearer in the months ahead,” says Rachel Wastell, Mozo’s personal finance expert.

“While the new structure might improve transparency, in terms of decision making it's still too early to tell if the dual board structure will significantly impact how the RBA makes decisions.”

The changes are in relation to Recommendation 12 (page 13) from Treasurer Jim Chalmers’ review ‘An RBA Fit for Future,’ last year. The recommendation proposed creating a Governance Board at the RBA to oversee strategy, risk, and financial reporting made up of non-executive members that would not be involved in policy decisions but provide external expertise to improve governance.

Underlying inflation remains above RBA target band

On Wednesday the Australian Bureau of Statistics (ABS) released the latest Monthly Consumer Price Index (CPI), painting a mixed picture for borrowers as the RBA gears up for its final cash rate decision of the year.

While it was promising to see the monthly headline inflation rate hold steady at 2.1% in October, and at the lower end of the RBA’s 2–3% target band, underlying inflation (the annual trimmed mean) rose to 3.5% - up from 3.2% in September.

The trimmed mean is the figure the RBA watches more closely, as it excludes volatile items and attempts to remove the impact of any temporary measures that superficially reduce inflation -  like government rebates- to get a clearer picture of where inflation really sits.

In a speech on Thursday, RBA Governor Michele Bullock made it clear that the board will not be swayed by lower headline inflation figures.

“Despite the decline there is still some way to go to return inflation sustainably within our 2–3 per cent target range,” she said. “The word ‘sustainably’ is important because it recognises that we need to look through temporary factors that influence the headline inflation rate from time to time. Indeed, over the past year, part of the decline in headline inflation has been due to temporary factors such as electricity rebates and declining fuel prices. “

In the November Statement on Monetary Policy, the RBA predicted inflation will  jump back up to 3.7% by late next year - well outside its target, and therefore will not be sustainably within the target band until late 2026.

“For borrowers hoping for rate relief, the data delivers a couple of key lessons,” says Wastell. 

“First, don’t count your chickens before they hatch and second, take matters into your own hands by securing your own rate cut through refinancing or rate negotiation - if possible - as there are still a number of rates out there starting with 5.” 

Top 5 Variable Rates (across all LVRs)

“I say ‘if possible,’ because I want to acknowledge the borrowers for whom it is not possible,” explains Wastell. “Including those Australians either trapped in their current mortgage or locked out of refinancing due to restrictive affordability tests and the rising cost of essential expenses.”

Borrowers trapped by APRA’s strict buffer

One of these restrictive affordability tests for borrowers is the current home loan serviceability buffer, regulated by the Australian Prudential Regulation Authority (APRA). 

This week controversy reignited over borrowers being trapped in their mortgages or locked out of the market altogether due to APRA’s strict 3% buffer and the contradictory perspectives from the financial industry about whether it is too high and should be reassessed. The Senate Economics Committee has been reviewing the buffer, with input from a range of stakeholders, and is set to present evidence next Thursday 5 December.

“The APRA buffer adds yet another hurdle for borrowers in an already challenging market,” says Wastell. “It’s like being told to save enough for a major renovation when all you really need is a fresh coat of paint.”

Mozo did some analysis to see just how much this buffer equated to in dollar terms, and the results were pretty astounding. In NSW, for example—based on the median dwelling price, borrowers are expected to show they could handle nearly $2,000 more per month in repayments, just in case rates rise by another 3% per annum. 

Additional Amount Borrowers Need to Meet APRA’s 3% Serviceability Test

But how likely is that scenario?

Since May 2022, the RBA has hiked rates 13 times, lifting the cash rate from 0.10% to 4.35%. To meet APRA’s buffer requirement, borrowers must now prepare for a scenario where the cash rate hits 7.35%—a level last seen in 1996.

“Given we’re at the peak of the most aggressive rate-hiking cycle since the 1990s, it’s unlikely we’ll see another 3% jump anytime soon,” says Wastell. “While rates might eventually climb that high again, by then, today’s borrowers will have paid down a chunk of their loans.”

Deposits shift as uncertainty of a rate cut in early 2025 fades

This week, ANZ made a small cut to its Progress Saver rate, reducing it by 15 basis points to 4.10% p.a. While modest, the move reinforces the shift we noted in September, where ANZ appears to be positioning ANZ Plus as the key focus,  incentivising younger savers to move to their digital offerings in search of better returns. 

In the fixed-rate savings space, as the potential for a rate cut in early 2025 continues to fade, Australian deposit rates are showing signs of re-adjustment. Banks that initially reduced rates in anticipation of a possible cut are now beginning to drip-feed basis points back into the pot, hoping to sweeten the deal for depositors eager to lock in high returns before the year ends.

Illawarra Credit Union raised its 3, 4, and 5-month term deposit rates by 30 bps to 4.50% p.a. on Tuesday. Rabobank followed suit, increasing its 9-month term deposit rate by 10 bps to 4.80% and boosting its 1-year rate by 20 bps to 4.75%. Rabobank hiked again on Wednesday, raising its 2-year term deposit rate by another 20 bps to 4.20%. 

Heartland also made smaller but strategic hikes across various term deposit rates, including a 5 basis point rise on its 1-year rate (to 5.10%p.a.) and 9 month rate (to 5.15%p.a.) placing it back in the top spot for both of those terms.

“With the landscape shifting, this is an ideal time for savers who can afford to lock their money away to shop around and lock in some of the higher, more competitive rates before they begin to fall again” says Wastell. 

“While many of these rate movements are incremental, they highlight a broader trend of lenders that are re-adjusting as underlying inflation remains sticky.” 

Smaller Lenders Take the Lead in Mozo Awards

On Thursday, Mozo also released the winners of the 2025 Mozo Experts Choice Awards for Personal Loans, revealing that smaller lenders are outshining the big banks when it comes to offering standout value. 

According to Wastell, smaller players are leading the charge, and this is something consumers should be taking note of in a time where rates are high, and getting the best deal is crucial. 

“When it comes to personal loans, size doesn’t always matter. Smaller lenders like IMB Bank and NOW Finance are proving they can deliver better value and more affordable options for Aussies looking to manage debt or fund big purchases.”

IMB Bank was recognised as offering Australia’s Best Personal Loans,  grabbing multiple wins across secured and unsecured loans. NOW Finance took home awards for their fee-free unsecured loans, marking the fifth year NOW Finance has been a winner in these awards.

“In a market dominated by rising rates, these lenders are making it clear that the best value is often found outside the big four banks. Just because they’re not a big brand name, doesn’t mean they should be overlooked. In typical Aussie fashion, we love an underdog.”

Check out the full winners list here or read the media release.

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As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market. 

If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking Roundup here.

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