Cash rate on hold: how to keep your budget in the black until rate cuts eventuate

The RBA has kept the cash rate on hold for the third consecutive meeting, as Australia’s monetary policy settings work to rein in inflation.

In a statement today, the RBA said: “returning inflation to target within a reasonable timeframe remains the Board’s highest priority”, and that it will not be “ruling anything in or out”.

The full force of Australia’s 13 RBA rate hikes is now being felt by variable rate borrowers, many of which have only just made it through the first full month of higher repayments. This is because it typically takes 2- to 3-months following a cash rate rise for borrowers’ monthly repayments to increase.

Impact of the previous 13 RBA rate hikes on monthly repayments

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA avg. existing owner-occupier variable rate of 2.86% in April 2022. Assumes borrower has not negotiated their rate since start of hikes.

When will we see cash rate cuts?

The RBA Board has previously said it will not consider cutting the cash rate until it is sure inflation will get back into the target range of 2 – 3 per cent.

Despite this, Australia’s big four bank economic teams believe we will see at least one cash rate cut in 2024, with CBA predicting three within the next nine months.

Current big four bank cash rate forecasts

Source: RateCity.com.au.

Painful squeeze likely to get worse before it gets better

While the cash rate is likely to be at the peak of this cycle, budgets could get tighter in the months ahead as cost-of-living pressures mount up.

The stage three tax cuts coming in the second half of the year will bring some relief, however, borrowers with impossibly tight budgets should take action themselves,

How to survive the next 6 months (and beyond):

1. Refinance your mortgage and you could potentially knock up hundreds off your monthly repayments (see calculations below).

2. Renegotiate your energy, internet and mobile phone plans.

3. Plan out a budget. Tallying up the last six months of expenses will show you where you can cut fat.

4. Get a second job. Turn a passion into a paying job whether that’s dog sitting, tutoring or practicing your latte art at a café on the weekends.

5. Give up a vice. Pick something you can live without for the next six months, whether that’s meat, alcohol, going out, getting your nails done or gaming.

6. Hit pause on your gym membership for the next six months and roll out the yoga mat at home.

Six things you absolutely should not do:

1. Use the credit card or any other form of debt to make ends meet.

2. Blow your stage three tax cuts on a series of impulse purchases. If you don’t need the extra cash to plug a hole in your budget, think about investing it.

3. Fall for any get rich quick scams. If it sounds too good to be true, it probably is.

4. Bank on getting an RBA rate cut. Yes, we could see cuts in the second half of this year but equally they could come in 2025. Your lender also has to play ball and pass them on.

5. Borrow money from friends if you aren't sure you can repay it.

6. Put your head in the sand. If you're in financial trouble, reach out for help. The National Debt Helpline is a great place to start: 1800 007 007.

A rate cut could save you hundreds off your monthly repayments

Borrowers should not wait for the RBA to cut the cash rate in order to get relief on their monthly mortgage repayments. RateCity.com.au research shows complacent variable owner-occupiers who have not negotiated their loan since the start of the hikes are on an average rate of 7.11 per cent.

However, there are still over 25 lenders offering at least one variable rate under 6 per cent, including HSBC and Unloan, a subsidiary of CBA (both 5.99%).

On a $500,000 mortgage, a rate cut from 7.11 per cent down to 6 per cent could knock $348 off a borrower’s monthly mortgage repayments.

Impact of refinancing to a competitive rate

Based on a $500,000 loan with 25 years remaining

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining on their mortgage. Does not include refinancing costs or future rate changes.

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