labelCategory: RBA Cash Rate
The Reserve Bank of Australia (RBA) has left the cash rate unchanged at 4.35% for February 2024.
Why Did The RBA Hold The Cash Rate In February 2024?
In its statement, the Reserve Bank’s board noted, “Inflation continued to ease in the December quarter. Despite this progress, inflation remains high, at 4.1 per cent.”
The board also mentioned, “Goods price inflation was lower than the RBA’s November forecasts. It has continued to ease, reflecting the resolution of earlier global supply-chain disruptions and a moderation in domestic demand for goods.” However, the governors added that “Services price inflation, however, declined at a more gradual pace, in line with the RBA’s earlier forecasts, and remains high.”
Further elaborating on the broader economic conditions, the statement by the RBA board indicated, “Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy.” The board also highlighted the ongoing changes in the labour market, stating, “Conditions in the labour market continue to ease gradually, although they remain tighter than is consistent with sustained full employment and inflation at target.”
The statement concluded with an emphasis on the uncertain economic outlook and the board’s commitment to monitoring inflation risks closely: “The outlook is still highly uncertain…The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
What Do Our Experts Say About The RBA’s Decision?
Alan Hemmings, CEO of Home Loan Experts, shared his insights on the RBA’s decision. “As expected, the Reserve Bank held off making any changes to the cash rate,” Hemmings began. He noted the decision was widely anticipated due to the better-than-expected inflation figures during the December quarter. Hemmings explained that many economists now believe we have reached the top of this interest-rate cycle, and the next move will likely be a decrease in the cash rate.
Hemmings also pointed out that if inflation continues to improve, the RBA might face pressure to cut the cash rate. However, he believes the Reserve Bank will be conservative in any downward movement. “Although inflation is improving, we are still facing some areas of pressure on prices,” he stated, citing high migration’s upward pressure on rental prices and upcoming tax cuts as factors contributing to this pressure. He also mentioned the potential overheating of the property market as a concern for the RBA, stating that “Last weekend was the first real auction weekend since Christmas and we saw clearance rates above 70 per cent. We are seeing some in the media forecasting 10 per cent property price increases over the year. These numbers will cause the RBA to be conservative with any cash rate cuts.”
So, what does it mean for you?
Hemmings advises that “existing mortgage holders should always review what interest rate they are paying compared with what is available; for example, we have started to see some lenders reduce fixed rates. We have some clients who approached us six months ago and couldn’t refinance due to servicing calculations. It is always worth revisiting and seeing if there has been any change.
For new market entrants, Hemmings emphasises that “getting a pre-approval is always important; knowing how much you can borrow and how much you can pay for a new home is critical, especially since we could see property prices increasing.”
How Does The Cash Rate Affect My Interest Rate?
Lenders add a margin to the official cash rate to determine the variable interest rate they offer to customers. So if you have a variable interest rate, it will almost certainly go up with a cash rate increase.
You can use our repayment calculator to find out what your repayments should look like whenever the cash rate changes.