RBA holds interest rates at 4.35% for the seventh consecutive meeting

The Reserve Bank of Australia (RBA) has announced the nation’s official cash rate will remain at 4.35% for a seventh consecutive monetary policy decision, providing no relief for Aussie home loan borrowers. 

In a post-decision statement, the Board reiterated that inflation in Australia is proving tricky to tame, but recognises that headline inflation has declined, citing the latest June quarter Consumer Price Index (CPI) data: 3.9% annually – not quite close enough to the Board’s target inflation band of 2-3%. 

RBA Governor, Michele Bullock, addressed the media to surmise the Board’s position on inflation and the outlook for future rate cuts. 

“The Board needs to be confident that inflation is moving sustainably towards the target before any decisions are made about a reduction in interest rates,” said Bullock. 

“So we really need to see progress on underlying inflation coming back down toward the target.”  

According to the RBA’s forecasts, inflation may not drop into the ‘sustainable’ range until 2026. However, that doesn’t necessarily mean no cash rate cuts for another 16 months, as the RBA will aim for a soft landing on inflation by gradually making cuts when appropriate. 

Economists at Big Four seem to echo this sentiment and predict the first rate cut will come in early 2025.

Any home loan relief? It’s raining fixed-rate cuts 

While homeowners in Australia won’t get the relief of a cash rate cut just yet, it’s currently raining fixed-rate cuts.

According to Mozo finance expert Rachel Wastell, there were 132 fixed interest rate cuts in September, with half of these cuts on 2 and 3-year terms. 

“Lenders are clearly gearing up for what could be a turning point in the rate cycle, and the trend is a focus on cutting more off those longer terms,” says Wastell.

“With dozens of cuts in September, particularly on 2- and 3-year fixed rates, banks are looking to attract borrowers with competitive offers before the RBA starts cutting, setting rates based on what they think they’ll need to recoup during that period.”

According to the Mozo database, there were 30 fixed-rate cuts on 1-year terms this month. This brings the average owner-occupied fixed rate down to 6.35% p.a. for borrowers looking to lock their rate in for one year (OO, P&I, $400k, <80% LVR, as of 24 September 2024). 

This is 0.41% lower than the average variable rate in the Mozo database, at 6.76% p.a. (OO, P&I, $400k, <80% LVR, as of 24 September 2024).

Herein lies an opportunity for borrowers struggling with a higher variable rate to refinance to a fixed-rate home loan for one year, while waiting for variable rates to come down. 

Of course, there are costs to refinance and borrowers run the risk of locking in for longer than it takes for interest rates to fall, missing out on a few months worth of savings. 

Whatever you decide to do, make sure you compare home loans to get a grasp of what your options are and consider getting professional financial advice from a licensed professional before making a decision.