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The outlook on interest rates remains uncertain, the RBA governor has said.
As the Reserve Bank of Australia (RBA) made the decision to keep interest rates unchanged at 4.35 per cent yesterday (19 March), RBA governor Michele Bullock further highlighted the board’s uncertain outlook.
“We’re uncertain, we don’t know,” Bullock said during the monetary policy decision media conference when asked if the board has taken on a neutral bias.
Bullock instead explained that the board is responding to emerging data in real time and that there are “risks on both sides of this and the risks are finely balanced”.
“On one hand, on the upside, we still have inflation above target ... services inflation is still elevated and that’s proving difficult to get down,” she said.
On the downside, Bullock acknowledged that the RBA is aware of slowing consumption and that there are signs in the unemployment rate that “some of the tightness in the labour market is easing”.
When asked if the RBA has abandoned its hiking bias, Bullock responded: “We’re not confident enough to say we can rule out further interest rate changes, but we do think that we are on the path to get ourselves back to inflation in target within our forecast period.”
In terms of rate cuts, Bullock rehashed her stance from the previous month, stating that the RBA needs to be “much more confident that inflation is coming back into the band in the future”.
“The central forecasts have [inflation] not coming back into the band into 2025,” Bullock said.
“So, if we were to see some acceleration and get some more confidence that [it is, then] possible rate cuts might be something on the agenda, but at the moment, we’re not seeing that.
“We’re in a position where we’re cautious. We want to wait and see. As I said, there are risks on both sides and we need to be conscious of that.”
Real estate weighs in
Following on from the announcement that the rate would remain at 4.35 per cent, CoreLogic Asia Pacific research director Tim Lawless said it was “no surprise”.
Opining that most economists now agree the next move on rates will be down, the research leader did concede that “the timing of an RBA cut remains uncertain and dependent on inflation outcomes”.
“Nonetheless, the hold decision, alongside lower inflation and a growing expectation that interest rates will reduce later this year, should help to provide a further lift in confidence,” he pointed out, flagging the historically close relationship between consumer sentiment and home sale volumes.
“Following the 6.2 per cent rise in the February consumer sentiment reading from Westpac and the Melbourne Institute, a further lift in confidence could be accompanied by a rise in home purchasing,” he continued.
From his perspective, “this could add to housing demand that has already remained quite resilient despite the higher interest rate environment and cost-of-living pressures”.
It’s a sentiment shared by PEXA chief economist, Julie Toth, who called the latest decision “welcome news for current and prospective mortgage holders, who will be spared another squeeze on their household incomes”.
“While cash buyers are a large and growing force in Australia’s property market, today’s announcement of an extended pause in interest rate changes will foster greater confidence among the vast majority of buyers who still rely on mortgages to finance their home or investment purchases,” she expressed.
While she is expectant of rates remaining stable until at least May, she did warn that “looking ahead, we cannot totally rule out another interest rate rise until inflation is more firmly anchored to the RBA’s 2 to 3 per cent target band”.
It was a warning also sounded by Geoff Lucas, the Agency CEO and managing director, who highlighted that “there is a slight but emerging risk that further inflationary impacts may necessitate a lift in rates before any cuts”.
But, he is also of the opinion that the next move “is most probably down, albeit very late 2024 or into 2025”.
“The change in frequency of interest rate decisions will see the obsession around the RBA’s meetings reduce as they are no longer front of mind, and as a result the driving force of property price changes are increasingly demand and supply as well as affordability,” he continued.
“These factors are creating unprecedented levels of difference in pricing movements within the many state, region and community markets.”
In conclusion, Lucas stressed how “never before has it been so critical to analyse specific markets rather than treat the market as a whole”.
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