RBA announces what it will do to interest rates – as experts reveal why there could be huge rate cuts by Christmas

Australian home borrowers could soon get a rate cut after the Reserve Bank signalled relief is on the way as global financial markets worry about a US recession.

The cash rate remained unchanged at 4.35 percent on Tuesday afternoon, a 12-year high. However, Governor Michele Bullock has strongly hinted at a possible easing, despite Australia’s still high inflation.

“Momentum in economic activity is weak, as evidenced by sluggish GDP growth, a rise in the unemployment rate and reports that many businesses are under pressure,” the Reserve Bank said.

The focus on record numbers of corporate bankruptcies marked a dramatic change from the June meeting, when Ms. Bullock told reporters the board had considered a rate hike but not a rate cut.

Instead, the RBA is now focusing on slow gross domestic product (GDP) growth.

The Reserve Bank said that overseas developments, rather than local inflation, would influence the next rate decision after its last two-day meeting.

“The board will base its decisions on the data and the evolving risk assessment,” the report said.

‘In doing so, the Council will continue to closely monitor developments in the global economy and financial markets, trends in domestic demand and the outlook for inflation and the labour market.’

Australian home borrowers could soon get a rate cut after the Reserve Bank suggested relief is on the way as financial markets worry about a US recession

Financial markets now expect the Reserve Bank to cut rates by the end of 2024, despite inflation rising slightly to 3.8 per cent in the year to June, further above the Reserve Bank’s target of 2-3 per cent.

Fears of a US recession saw Australian stock markets wiped off more than $100 billion on Friday and Monday, the biggest two-day drop since the pandemic began in March 2020.

The 30-day interbank futures market is now predicting rate cuts in November and December, the first consecutive rate cuts since the pandemic hit in early 2020.

The US Federal Reserve is now widely expected to cut interest rates three times in 2024. This year, interest rate cuts have already been implemented in the European Union, Canada and the United Kingdom.

According to Kyle Rodda, market analyst at Capital.com, the futures market no longer expects another rate hike in Australia, despite inflation still being high.

“Nobody is really talking about rate hikes anymore and that’s because of international issues, but there’s also the fact that local inflation numbers are not as bad as previously thought,” he told Daily Mail Australia.

‘Markets increasingly believe a rate hike is off the table, despite Australia’s inflation still running above target.’

Shane Oliver, chief economist at AMP, said there was a risk the Reserve Bank could trigger a recession in Australia if it took too long to cut rates, echoing concerns about the US economy.

“While the RBA is still struggling with too high inflation, given the US experience, it should now consider cutting rates, as there is now a risk that unemployment will become much higher and inflation will fall short of its target,” he said.

This is despite the fact that the Reserve Bank continued to warn of high inflation in its August statement.

The cash rate remained at 4.35 percent on Tuesday, the highest level in 12 years, but Governor Michele Bullock has strongly suggested the next step is likely to be an easing

The 30-day interbank futures market is now predicting rate cuts in November and December, marking the first consecutive rate cuts since the pandemic hit in early 2020

“Data have underlined the need to remain vigilant to upside inflation risks and the board has not ruled out any clause yet,” the report said.

‘Policy will need to be sufficiently restrictive until the Council is confident that inflation is moving towards the target range in a sustained manner.’

The RBA continues to maintain a neutral monetary policy stance, as it continues to use the phrase that ‘nothing is ruled out or excluded’.

This means that a rate hike is still possible, even if it is still a long way off.

Two rate cuts in 2024, as forecast by the futures market, would take the Reserve Bank’s cash rate back to 3.85 percent by Christmas for the first time since June 2023.

Monthly repayments on an average $600,000 mortgage would fall by $197, back to $3,671, as the Commonwealth Bank’s variable rate fell to 6.2 per cent.