February cash rate called
The central bank has made its first cash rate decision of the year.
The Reserve Bank of Australia (RBA) has announced the official cash rate remains unchanged at 4.35 per cent in its first monetary policy meeting of 2024.
Today’s meeting (6 February) has marked the commencement of the RBA’s new process regime based on the recommendations made in the RBA Review which will now see the board meet eight times a year (every 6 weeks) instead of 11, with meetings taking place over two days (the board met yesterday afternoon and continued until today).
Notably, this meeting was the first time in the RBA’s history that the board has met on a Monday.
In its post meeting statement, the RBA revealed: “While there are encouraging signs, the economic outlook is uncertain and the board remains highly attentive to inflation risks.”
“Returning inflation to target within a reasonable timeframe remains the board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment.
“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.
“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out,” the board added.
Commenting on the decision, chief executive of aggregator Mortgage Choice, Anthony Waldron, said the cash rate hold was unsurprising due to the December Consumer Price Index (CPI) figures released by the Australian Bureau of Statistics (ABS) and a large fall in retail spending over the typically higher holiday period.
“This hold decision will be welcomed by buyers and borrowers around the country. The Mortgage Choice brokers I’ve spoken with as the year gets underway are reporting a strong sense of optimism in the market.”
Although bond traders and the money market brought forward rate cut predictions to the second half of 2024, the RBA has been transparent in its goal to return inflation to 2-3 per cent, Mr Waldron added.
Executive director for aggregator Connective, Mark Haron, said that borrowers can “take comfort” in rates being unchanged.
“With the fall in the recent inflation rate, the year ahead looks encouraging.
“People are already considering entering the market now to seize opportunities before potential interest rate cuts later this year. In many recent discussions with brokers, they have noted significant anticipation among borrowers. Some plan to upgrade their existing property, while others are eyeing a second one.”
“Now is the time for brokers to initiate new conversations. Connecting with borrowers at the right time and utilising the right tools and technology can demonstrate knowledge, value, and alignment with their needs,” Mr Haron said.
Why the rate hold was not a surprise
The December CPI figures revealed that that quarterly inflation rate had increased by 0.6 per cent, the smallest quarterly increase recorded since March 2021. This largely led to expectations that the RBA had no reason to lift interest rates.
Furthermore, annual inflation rose by 4.1 per cent by December 2023, down from the 7.8 per cent peak recorded in December 2022.
Major bank economists now believe interest rates have reached its peak, with the next move likely being rate cuts, set to begin in the latter half of the year.
