RBA makes October interest rate decision

The Reserve Bank of Australia has decided to pause the official cash rate for the fourth month a row following Tuesday’s October board meeting.

In what was RBA governor Michele Bullock’s first cash rate decision since she took over from Philip Lowe in September, the board opted for stability despite a slight rise in the latest inflation numbers last week.

This followed the predictions of nearly every economist in Australia. All major banks and every expert panellist on the Finder RBA Cash Rate survey (38/38) believed the RBA would hold the cash rate at 4.10% – the first time that has happened this year.

Bullock said 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.

“In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month,” said Bullock (pictured above centre).

“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”

Pain persists for Australians

The decision came at a dire time for many Australians. According to Finder, 44% are living month-to-month, 36% struggling to pay their home loan in September, and 75% not expecting growth in wages next year.

However, for some, demand for housing is still there.

“To be honest business is booming, not changing the rate is good as consumer confidence is high,” said George Samios (pictured above left), founder of Queensland-based brokerage Madd Loans. “We are having record amounts of pre-approvals happening here at Madd so it’s good to see this won’t stop.”

“Also this will be a big relief as we have hundreds of customers coming off 1.99% fixed rates so knowing the RBA has kept the rate on hold will give those with mortgages some anxiety relief, especially coming into the Christmas period.”  

Veronica Vojnikovic (pictured above right), managing director of Perth-based brokerage Vevo Financial Services, agreed. She said “a large percentage” of Australians were still rolling off their fixed rates and wanted clarity and guidance.

“We are seeing many clients actively looking to refinance their home loans, despite the cash rate remaining the same,” Vojnikovic said. “It’s a great opportunity for clients to revisit their finances and long-term goals.”

“A regular review with an appropriate action plan can provide clients the confidence to face ongoing uncertainty in this economic climate. When struggles present themselves, it’s important to take a moment of reflection to identify how we can improve our quality of living from a personal and financial perspective.”

Will there be another rate rise this year?

With the official cash rate paused for another month, the focus now turns to whether it has peaked.

ANZ, Westpac, and CBA agree that 4.10% is the highest point in the current cycle. NAB, however, anticipates one more 25-basis-point increase by December, pushing the cash rate to 4.35%.

According to Samios, another rate hike is likely before the end of the year, possibly in November. He speculates that the new governor, Bullock, wouldn’t want to raise rates immediately after taking office, and December seems unfavourable due to the holiday season.

“I am seeing the long-term fixed rates come down slowly, showing me we’re close to the peak of rate rises,” Samios said. “I’d seriously think hard if I was to fix now as I believe mid to late next year rates will begin to drop, I believe they’ll end up around the mid-5% range.”

Vojnikovic was more optimistic, expecting the cash rate to remain stable before tapering off next year. She anticipates minor rate reductions from mainstream lenders and predicts the first RBA rate cut between April and June next year.

Vojnikovic highlighted increased demand for variable rates, driven by the belief that the cash rate was either at its peak or close to it.

“However, we are not out of the woods yet in terms of avoiding a further rate rise, locking into a fixed rate agreement can be favourable in the short term,” she said.

“Loan splitting has also been popular feature – it provides clients the opportunity to hedge against further rate rises by splitting their home loan across a variable and fixed rate.”

Current market still hot

As the market stabilises after a series of steep rate rises, Samios said the current market was still “very hot”.

Samios noted a significant surge in customers seeking pre-approvals. In September alone, Madd Loans processed a record $80 million in loan applications, indicating a growing market.

“Let’s be honest, Australia is one of the best countries in the world. We have the Olympics coming here, a massive amount of infrastructure investment as our population increases at a rapid rate. Not to mention the rental and housing crisis pushing up demand,” Samios said. 

“It is so clear that property is a safe investment so for those people who can afford a mortgage they are wanting a piece of the pie.”

From AustralianBroker

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