Since the last Reserve Bank rate hike in July 2023, the interest rate hold has been looking more and more certain. The prevailing thought is that the current cash rate of 4.10% is high enough to work its magic, slowing inflation without plunging the economy into a recession.
However, the latest Consumer Price Index data from the ABS has thrown matters into question. Quarterly, inflation is down from 6.0% to 5.6% in the year to September, but the more volatile monthly CPI has increased for the third month in a row. So is inflation really declining?
“While many industries price increases are slowing, automotive fuel has had large annual increases in the last two months, which has been driving the movement higher,” explains ABS head of prices statistics Michelle Marquardt.
It’s enough to make expert economists nervous. Even two Big Four Banks – CommBank and ANZ – have revised their interest rate forecasts. While before they were certain rates had peaked at 4.10%, their official stance now is that the RBA will make one more rate hike of 0.25% in November, pushing the cash rate to 4.35%.
CommBank, in particular, has been one of the most reliable predictors of cash rate movements. There’s also plenty of solid evidence from the RBA itself. Governor Michele Bullock has maintained public confidence that if inflation continues to stagnate – or worse, increase – the central bank will tighten its monetary policy and hit the cash rate with another hike.
Such a move would inevitably flow through to home loans, particularly those on variable or ‘floating’ interest rates that rise with the inflationary tide.
The current interest rate hold has somewhat relieved home loan borrowers. While individual lenders have made little adjustments – both hikes or cuts – the average variable interest rate for owner-occupied home loans has hovered around 6.61% in the Mozo database for the last three months, at least. If the RBA hikes again, we can safely expect this to climb.
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Source: mozo.com.au