Millions of Australians on edge ahead of Reserve Bank’s big decision

Australian mortgage holders are unlikely to face another rate hike on Tuesday, but they will have to endure until the end of the year before any talk of a 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 meeting in August.

Ms Bullock will also outline the Board’s reasoning for its decision and indicate whether a reduction or increase may take place this year.

Most economists believe last week’s stable consumer price index figures were enough to allow the RBA to leave the official cash rate unchanged at 4.35 percent, the level it has held since November last year.

While inflation at 3.8 percent in the second quarter was still above the RBA’s target of 2-3 percent, it did not rise as strongly as expected.

However, the all-important underlying inflation figure, or the trimmed average that strips out larger price movements, fell from 4 percent to 3.9 percent.

Cherelle Murphy, chief economist at EY Oceania, told Sky News on Monday that the RBA is “fairly confident” there is “no rush” to do anything.

“I think the Reserve Bank is reasonably confident that things are developing as expected and that there is no rush to do anything,” Murphy said.

Australian mortgage holders are likely to be spared another rate hike on Tuesday but will have to endure until the end of the year before any talk of a possible cut.

‘They must continue to ensure that last year’s interest rate changes are reflected in the economy.’

The RBA will also release its latest economic forecasts on Tuesday, including an inflation forecast that includes the $300 energy bill rebate for all households announced by the Albanian government in its May budget.

The ECB currently does not expect inflation to reach the midpoint of its target before 2026.

The Albanian government has a strong interest in inflation and falling interest rates, in preparation for elections in May next year.

The Treasury forecast in its May Budget that inflation would fall to 2.75 percent by Christmas, significantly lower than the RBA’s forecast of 3.1 percent from May.

Finance Minister Jim Chalmers said the cut, which will be spread over the four quarters of this budget year, would put pressure on inflation.

CommBank’s Stephen Wu said the impact of the energy cuts could lead to the RBA “revising downwards” inflation figures.

However, he said the forecast for the trimmed average CPI would likely remain the same.

‘More specifically, we expect the line from the June statement to be maintained that ‘the path of interest rates that best ensures that inflation returns to the target level within a reasonable time frame remains uncertain and the administration refrains from making any statements on anything positive or negative,” he wrote.

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 meeting in August.

“While the administration will have welcomed the latest inflation figures, there is no reason to deviate from the recent script. It is indeed too early to change tone.”

The official interest rate of 4.35 percent is the highest in 12 years and has led to mortgage stress for many households as they struggle with cost of living pressures.

New research from Canstar, Australia’s largest financial comparison site, has found that stressed borrowers who bought a mortgage just before the 2022 rate hikes, when their budgets were maxed out, were perilously close to breaking point.

A dual-income couple with an average combined income of $184,060 who reached their maximum borrowing capacity and purchased a home in early 2022 can now contribute about 43.90 percent of their pre-tax income toward home repayments.

“With the major banks predicting no rate cuts before November and particularly May 2025, many borrowers will remain stressed for some time to come,” said Canstar financial expert Steve Mickenbecker.

“But even then, one rate cut will only take many mortgage holders from worst stress to worst stress.”

With the big four banks still expecting the next rate move to be a rate cut, a 0.25 percent cut could reduce current payments on a $600,000 loan by $101 to $3,984 per month.

But an unexpected 0.25 percent increase would add another $102, bringing the monthly payments on a $600,000 loan to $4,187.