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RBA delivers final rate call for 2023

By Orana Durney-Benson
05 December 2023 | 13 minute read
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After much anticipation, the Reserve Bank of Australia (RBA) has finally revealed whether this year will close with a cash rate hike or hold.

As Australia enters the festive season, the RBA has chosen to hold the official cash rate at 4.35 per cent.

The news comes as a relief to commentators, who had warned the RBA that a 14th rate hike would burden an already-struggling property market.

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Hayden Groves, president of the Real Estate Institute of Australia (REIA) warned the RBA not to take promising property statistics as an invitation to “gamble on another rate rise”, flagging that this could further impair the already-struggling construction sector.

Peter White AM, managing director of the Finance Brokers Association of Australia (FBAA), had also said that a rate hold was necessary to avoid placing additional pressure on struggling households.

Mr White countered the RBA governor’s recent claim that Australian households are in a “pretty good position”, asserting one in four Australians have seen their financial situation worsen over the last 12 months.

“We understand that the RBA has a complex job to do, but when the governor says that Australians are all doing well, and that inflation is getting higher by people getting haircuts and going to the dentist, I have to question what planet she is living on,” said Mr White.

The FBAA director urged the RBA “not to dismiss the human toll that results from its decisions”.

With 35 per cent of Australian homes currently financed by a mortgage, Scott O’Neill from Rethink Investing noted that the rate hold may offer mortgage holders much-needed relief.

“For home owners with a variable rate mortgage, an upswing in interest rates would translate into increased monthly payments,” Mr O’Neill observed. He added that “this could potentially curtail the amount of disposable income they have remaining” and limit spending capacity.

When it comes to renters, Mr O’Neill noted that high interest rates “are dissuading developers from constructing and discouraging investors from supplying rental properties to the public, which is consequently resulting in historically low vacancy rates and unprecedented growth in rental rates”.

With renters making up the most vulnerable factions of our society, Mr O’Neill stated that “maintaining steady interest rates could potentially bring relief to these individuals”.

And despite the decision to hold the cash rate steady, Australians need not fear a spike in inflation, with PropTrack senior economist Eleanor Creagh sharing that inflation rates are continuing to trend downwards.

“The latest monthly Consumer Price Index (CPI) report revealed inflation was up by 4.9 per cent over the 12 months to October 2023,” said Ms Creagh.

“While this is still above the RBA’s target, it continued the downward trend, which has seen inflation fall from a 30-year high in December 2022,” the economist explained.

Nevertheless, Ms Creagh warned Australians not to rest on their laurels, noting that the RBA “has been clear that it has a low tolerance for allowing inflation to return to target more slowly than expected”.

“Should data indicate inflation is returning to target at a slower pace than currently expected, the risk of another lift in February 2024 remains.”

In the meantime, however, property prices remain robust in spite of the hits mortgage holders have taken since rate hikes began in May 2022.

“Property prices have defied expectations and home values have remained resilient to higher interest rates this year,” reported Ms Creagh.

According to LJ Hooker’s head of research, Mathew Tiller, the December cash rate hold, coupled with consistent price growth over the past year, bodes well for home sales over the Christmas period.

“Home owners, regardless of their circumstances, are now more confident that they will achieve a good sales price,” said Mr Tiller.

“So while there is a component of sellers who are doing it a little bit tough due to last month’s rate rise, not everyone is listing because they are struggling to pay off their mortgage,” he revealed.

Mr Tiller predicts that the Australian property market will taper off over Christmas, before revving back up again early in 2024.

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