The Reserve Bank of Australia (RBA) is set to announce its September cash rate decision at 2:30pm AEST. With Australians eager for relief from rising living costs, many hope the it will lower the cash rate. However, most economists believe the rate will remain steady at 4.35 per cent, as the reserve bank continues to assess the economic climate. In this article, we’ll provide an overview of the bank’s role, the current cash rate, and expert predictions regarding interest rates in Australia.
What is the Cash Rate Target?
The cash rate target, currently set at 4.35 per cent, is a key tool used by the RBA to influence borrowing costs across the economy. This rate determines how much commercial banks charge their customers for loans, including mortgages. While the bank sets the target, it is up to the banks to decide if and when they adjust their interest rates in response.
When the reserve bank of australia changes the cash rate target, banks typically issue statements outlining any subsequent changes to their rates. However, changes to mortgage rates are not automatic and can vary from bank to bank. The RBA meeting today will determine if this key rate will shift, but most experts believe that a rate cut is unlikely.
Will the RBA Cut Rates Today?
Economists are not optimistic about a rate cut during today’s RBA meeting. Most predict that the central bank will hold the cash rate at 4.35 per cent for the time being. AMP deputy chief economist Diana Mousina highlights several economic indicators that support this view:
- Wages growth has slowed.
- Job growth remains solid.
- Unemployment is tracking at 2 per cent.
- Economic growth is weak in the second quarter.
- Inflation is moderating as expected.
- Consumer and business confidence remains low.
These factors align with the RBA’s economic forecasts, leading Ms Mousina to conclude that there is no immediate need for a rate cut. ING Bank’s Asia-Pacific regional head of research, Robert Carnell, shares a similar view, stating that there is no possibility of a rate cut at this meeting.
Why Are Rate Cuts Unlikely?
The Australian Securities Exchange’s (ASX) RBA rate tracker puts the probability of a rate cut at just 10 per cent for today’s meeting. This is largely because key economic indicators do not yet support a move to lower interest rates. The RBA’s goal is to manage inflation, and for now, inflation remains above its 2-3 per cent target range.
Lowering interest rates prematurely could risk further inflationary pressures. RBA Governor Michele Bullock has made it clear that rate cuts are not on the horizon, stating, “It is premature to be thinking about rate cuts.” She also emphasised that while circumstances may change, the board will only respond if economic conditions deviate from expectations.
When Will Interest Rates in Australia Decrease?
While a rate cut seems unlikely in the near term, economists from Australia’s major banks are offering their predictions for when rates might finally drop. These are the current estimates:
- ANZ: February
- CBA: December
- NAB: May
- Westpac: March
These forecasts suggest that Australians will have to wait several more months before seeing any relief in borrowing costs. Governor Bullock’s recent remarks also align with these predictions, as she advises borrowers not to expect a reduction in the cash rate anytime soon.
The Global Context: Could US Rate Cuts Influence the RBA?
Last week, the US Federal Reserve cut its interest rates by 0.5 per cent, sparking speculation that the RBA might follow suit. However, the Australian economy faces different challenges. While the Fed’s move signals concerns over the US economy, the RBA remains focused on managing inflation. For now, Australia’s inflation rate is too high to justify cutting rates, according to the latest data.
Australia’s annual inflation rate rose to 3.8 per cent in the June quarter, up from 3.6 per cent in the March quarter. The RBA’s main objective is to bring inflation back within its target range of 2-3 per cent. Until inflation eases significantly, the RBA is unlikely to reduce the cash rate.
What Will It Take for the RBA to Cut Rates?
For the RBA to consider lowering interest rates, inflation must decrease significantly. The central bank has made it clear that inflation remains too high, and they expect it will take time before the rate stabilises within their target range.
After the RBA’s August meeting, the central bank released a statement noting, “Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range.”
In short, any decision to cut the cash rate hinges on lower inflation figures. For now, Australians will need to manage with current rates as the RBA continues its efforts to stabilise the economy.
Conclusion
Today’s RBA meeting is unlikely to deliver a rate cut, with most experts agreeing that the cash rate will remain at 4.35 per cent. Despite pressure from borrowers, the RBA is prioritising inflation control, and the current economic landscape does not support a rate reduction. Economists predict that rates may start to decrease in early 2024, but for now, borrowers will need to keep a close eye on future RBA meetings and inflation data.
