Bullock holds firm with an RBA rate hold for October

Despite headline inflation experiencing a minor bounce back in the year to August, the Reserve Bank of Australia decided today that interest rates are still high enough to quash the problem. As a result, the RBA board – headed by new governor Michele Bullock – held the official cash rate steady at 4.10% for October 2023.

“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,” explained Bullock in a post-meeting statement.

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

Today’s RBA decision marks the fourth month in a row of pauses. The last time the cash rate stayed the same this long was in early 2022 – before inflation grew into a monster the central bank could not ignore. 

In the last few months, average variable interest rates for home loans have hovered around the 6.60% - 6.61% mark in the Mozo database. While lenders have made out-of-cycle rate changes to individual offers, many households haven’t had to deal with spikes in their mortgage repayments every month – a welcome reprieve to many. 

Indeed, the most recent inflation data has reflected these increases in housing costs for homeowners, landlords, and tenants in investment rental properties. It’s an irony, given the hand the RBA has had in raising interest rates to control inflation, but the RBA isn’t concerned with housing affordability: just keeping the economy level. 

There’s also the matter of Australia’s per capita recession. According to the latest GDP data, Australia’s economic output by person has lagged behind for two quarters in a row. A slowdown this hard isn’t what the RBA wants: if output and household spending collapses, it can tank the value of the Australian economy and can spiral into something worse. 

Keeping interest rates high is supposed to keep pressure on households – and therefore inflation – but if the cash rate is too high for too long, the RBA may overdo their own efforts and fumble the ‘soft landing’ it’s been aiming for. Unemployment remains critical to watch: if people start losing jobs, then the alarm bells will ring. 

“Growth in the Australian economy was a little stronger than expected over the first half of the year. But the economy is still experiencing a period of below-trend growth and this is expected to continue for a while,” said Bullock.

“Given that the economy and employment are forecast to grow below trend, the unemployment rate is expected to rise gradually to around 4½ per cent late next year.”

It’s worth noting that a per capita recession isn’t the same as a technical recession, which is when the GDP drags overall. Often when journalists refer to a recession, a technical one is what they mean. 

However, a per capita recession has been described as a downturn that isn’t really a recession but just feels like one for households, similar to the slump experienced by Aussies in the early days of the COVID-19 pandemic. Despite the rate hold bringing relief to the onslaught on home loan borrowers, households haven’t shown much relief in their spending. 

“High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment,” warns Bullock.

“And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.”

Holding the ship steady was probably a wise choice from Bullock, who shows she means business but isn’t keen to tamp down (or undo) the effort of previous months. It remains to be seen how long rates will hold, but for now, the 4.10% cash rate is here to stay.

The longer interest rates hold steady, the more likely it becomes that the next change the RBA will make will be a cash rate cut by September 2024 – now less than a year away.

Indeed, both Westpac and NAB forecast 50 to 100 basis points worth of cuts by December 2024, pulling the cash rate down into more ‘neutral’ territory. Home loan borrowers, set your watches.

Mozo banking expert Peter Marshall reckons the cuts could even come earlier, based on the behaviour of some of Australia’s leading banks – particularly around the flurry of fixed home loan and term deposit cuts seen in the Mozo database.

“The way the banks are moving now says they think the first RBA rate cut will be in the first half of next year,” says Marshall.

“If the economy starts to dive faster than expected and if the inflation goal is being reached, then the RBA can cut rates sooner. It might be later in the year, but it could be earlier, and from what I’m seeing from the banks, some of them think it’s earlier.”

Home loan lenders have started making more consistent cuts to fixed home loans as expectations for a high cash rate down. 

Indeed, fixed interest rates now may be at an inflection point where they tip into better value than many variable rate offers. They’re likely to continue trending down the more and more the RBA holds interest rates steady. Variable interest rates, on the other hand, will stay about the same. 

We’ll track which lenders have changed rates as word comes in. To see how your lender compares, visit our home loan comparison page.