Cash rate to hold steady but will the RBA put borrowers back on notice?

Australia’s cash rate is set to remain on hold at 4.35 per cent at the end of the Reserve Bank’s Monetary Policy Meeting tomorrow, however, the Board may put borrowers back on notice that another rate hike could be required.

The minutes of the last meeting in March revealed that the Board did not actively consider the case for a cash rate hike at that meeting. This was the first time the RBA did not canvas this as an option since April 2022.

This week’s meeting, however, is likely to take a different tone.

The latest CPI figures from the ABS show the battle against high inflation is slowing, with trimmed inflation still sitting well above the target band at 4.0 per cent annually, and the monthly indicator recording a slight rise in inflation in the month of March.

ABS monthly CPI indicator (annual)

Source: ABS

How much would a 0.25%-point increase cost borrowers?

A borrower with a $500,000 mortgage and 25 years remaining at the start of the hikes would see their monthly repayments rise by $74 if the RBA raises the cash rate to 4.60 per cent.

While this is not a huge amount, combined with what would then be 14 hikes in total, it would amount to an increase of as much as $1,284, if a borrower has not renegotiated their loan since the start of the hikes.

Potential impact of a 0.25% pt hike on monthly repayments

Based on a borrower who has not renegotiated their loan since the start of the hikes

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining who has not renegotiated since the start of hikes. Starting rate is the RBA avg. existing owner-occupier variable rate of 2.86% in April 2022. Based on a 0.25% pt rate hike in November 2024.

What should borrowers do?

Borrowers should start preparing their finances for at least one more rate hike, just in case.

They can do this by contacting their bank and asking for a rate cut.

If a home loan customer gets 0.25 percentage points knocked off their current interest rate, but they keep their monthly repayments the same, they would instantly be ready for another hike and paying down extra in the meantime.

What is a decent mortgage rate at this point?

RBA data shows, in the month of February 2024, the average variable rates were:

• Owner-occupier variable: 6.36%
• Investor, variable: 6.66%

Borrowers picking up the phone to haggle with their lender should aim for a rate below this average, armed with the knowledge there are a multitude of lenders advertising rates under this mark, although some requirements such as a big deposit may apply.

RateCity.com.au data shows:

• 30 lenders are still offering at least one owner-occupier variable rate under 6 per cent. While the list is dominated by smaller banks and credit unions, it also includes HSBC, Up Bank, a subsidiary of Bendigo Bank and Unloan, a division of CBA.
• 22 lenders are still offering at least one investor variable rate under 6.25 per cent. This includes Bendigo, Newcastle Permanent and Greater Bank.

Cash rate cut forecasts in retreat

CBA and Westpac shuffled back the timing of their RBA rate cut forecasts on the back of last month’s CPI results.

Both banks had previously pencilled in cuts for September, however, this has now shifted to November.

CBA has also reduced the number of cuts from six to five.

NAB and ANZ’s forecasts remain unchanged, however, ANZ has said there is a risk the cuts might not materialise until later.

Current big four bank cash rate forecasts

Source: RateCity.com.au.

RateCity.com.au research director, Sally Tindall, said: “Australia’s inflation battle is far from won and the Board could well put the country back on notice that further hikes may be necessary.”

“We know from the minutes of the last meeting the RBA did not consider the case for a rate hike. This was the first meeting the Board did not proactively review the arguments in favour of increasing the cash rate since April 2022,” she said.

“Instead of “not ruling anything in or out”, which was the RBA’s message back in March, there’s a chance Governor Bullock will put Australians back on notice by explicitly referring to rate hikes once again.

“Looking at the data, unemployment is still incredibly low at 3.8 per cent, the property market’s Teflon coating remains intact, with the latest CoreLogic figures showing 15 months of growth, and money in the bank from households has hit a new record high.

“This all gives the RBA cover to fire off another hike, if the next couple of rounds of inflation data warrants it.

“Borrowers should not sit idly by, waiting for the RBA to make its next move, but instead ask their bank to review their current rate.

“One 0.25 percentage point cut to their current mortgage rate is all borrowers need to prepare themselves for another rate hike, especially if they keep their mortgage repayments the same.

“That said, don’t settle at a 0.25 percentage point cut. The average owner-occupier variable rate is currently 6.36 per cent. Being below average has never been so important.

“Cash rate cuts will come, but the timeline for these cuts has taken a backwards step.

“The big four bank economists still predict there will be at least one cash rate cut this year, however, if you’ve got a mortgage, plan for the worst and hope for the best,” she said.

Lowest variable owner-occupier rates on RateCity.com.au

Excludes introductory rates and green loans

Source: RateCity.com.au. Rates are for borrowers paying principal and interest. Other lending criteria may apply.

Lowest variable investor rates on RateCity.com.au

Excludes introductory rates and green loans

Source: RateCity.com.au. Rates are for borrowers paying principal and interest. Other lending criteria may apply.

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