Anxious wait on interest rate decision

Australian mortgage holders are likely to be spared another interest rate hike on Tuesday, but they will have to hang out until late in the year before there is any possible cut.

Reserve Bank of Australia governor Michele Bullock will announce the board’s decision on the official cash rate at 2.30pm on Tuesday following its two-day August meeting.

Ms Bullock will also outline the board’s reasoning for its decision and whether or not a cut or hike could happen this year.

Most economists believe last week’s steady consumer price index data was enough to allow the RBA to keep the official cash rate on hold at 4.35 per cent where it has sat since November last year.

Although the June quarter inflation figure of 3.8 per cent was still above the RBA’s target of 2-3 per cent, it did not rise as much as expected.

However the all-important underlying inflation figure, or the trimmed mean which excludes larger price movements, dropped from 4 per cent to 3.9 per cent.

EY Oceania Chief Economist Cherelle Murphy told Sky News on Monday the RBA would feel “reasonably comfortable” there is “no hurry” for them to do anything.

“I think the Reserve Bank will feel reasonably comfortable that things are evolving as expected and there’s no hurry for them to do anything,” Ms Murphy said.

“They have to continue to see last year’s rate moves continue to flow in through the economy.”

The RBA on Tuesday will also release its latest economic forecasts, including for inflation, which will take in the $300 energy bill rebate for all households the Albanese government announced in its May budget.

At the moment, it does not expect the inflation rate to hit the mid-point of its target range till well into 2026.

The Albanese government is heavily invested in inflation and interest rates falling as it prepares for an election by May next year.

Treasury in the May budget forecast inflation to fall to 2.75 per by Christmas, well below the RBA’s forecast of 3.1 per cent from May.

Treasurer Jim Chalmers has said the rebate – to be spread across the four quarters of this financial year – would put downward pressure on inflation.

CommBank’s Stephen Wu said the impact of the energy rebates could cause the RBA to “downwardly revise” headline inflation figures.

However, he said the prediction on the trimmed mean CPI would likely remain the same.

“More specifically we expect the line to be retained from the June statement that ‘the path of interest rates that will best ensure that inflation returns to target in a reasonable time frame remains uncertain and the board is not ruling anything in or out’,” he wrote.

“Whilst the board will have welcomed the latest inflation data, there is no need to deviate from the recent script. Indeed it is too early to shift tone.”

The official interest rate of 4.35 per cent is the highest in 12 years and has caused mortgage stress for many households facing cost of living pressures.

Stressed borrowers who bought right before the rate rises started in 2022 at the top of their budget were dangerously close to breaking point, new research from Australia’s biggest financial comparison site, Canstar, said.

A dual-income couple earning a combined average income of $184,060, who maxed out their borrowing capacity and purchased a home in early 2022, could now be contributing approximately 43.90 per cent of their before-tax income to repayments.

“With the big banks predicting no rate cuts before November at the earliest and most pessimistically May 2025, many borrowers will be living in stress for quite some time,” Canstar’s finance expert Steve Mickenbecker said.

“Even then, one rate cut will only move many mortgage holders from dire stress to deep stress.”

With the big four banks still forecasting the next rate move being a rate cut, a reduction of 0.25 per cent could cut current repayments on a $600,000 loan by $101 to $3984 per month. But an unexpected rise of 0.25 per cent would add another $102 and see monthly repayments on a $600,000 loan reach $4187.