RBA will keep cash rate on hold in December: experts

The vast majority of experts believe that the Reserve Bank of Australia (RBA) will leave the cash rate unchanged at 4.35% during its December meeting, due to a sharper-than-expected fall in inflation according to the October CPI data.

This month’s Finder RBA Cash Rate Survey has found that while 82% of all experts expected the RBA would hold the cash rate at 4.35% in December, half of panellists said that, according to the them, the cash rate had already peaked.

If the experts are right, the unchanged cash rate will offer mortgage holders two months of relief and certainty, given that the RBA does not make a decision in January and will be able to make only eight changes in 2024 as from the next year the central bank will meet only eight times rather than 11 which is currently the case.

However, Finder’s head of consumer research, Graham Cooke, said that despite an expected rate hold in December,  the cash-strapped mortgage holders still “aren’t out of the woods”.

“If inflation doesn’t continue to ease, we are looking at another rate rise early next year,” Cooke argued.

Some experts said that they settled quite firmly this month on “hold” decision and believed that the level of 4.35% was unlikely to stay unchanged by the second quarter of next year.

“This seems in line with Michele Bullock’s communication, although the domestic sources of inflation talk could indicate otherwise,” Tomasz Wozniak from University of Melbourne argued.

According to AMP Capital’s chief economist, Shane Oliver, who also believed the RBA would keep the cash rate on hold in December, the recent commentary from Australian central bank lacked the sense of urgency seen prior to the November meeting and there has been softer data for retail sales, home prices and inflation, indicating that there is “no smoking gun to justify another hike”.

Adj Prof Noel Whittaker, QUT Business School, who agreed with Wozniak and Shane, said that Michelle Bullock made no secret of the fact that she would not be scared to increase rates if inflation did come down.

“Her stated view is that inflation hurts everybody but rate rises only hurt one section of the community. But, having said that, inflation did come down [last week] so the trend is in the right direction,” he noted.

“Given the pressure on household budgets which will happen when the Christmas bills arrive in January, I think they will hold and adopt a wait-and-see attitude.”

So, what does it mean for first home buyers next year?

According to Finder’s Consumer Sentiment Tracker, a slim majority of the panel believed that the number of first home loans would fall in 2024, given a growing number of Australians who are not in interested in home ownership.

The Finder’s data showed that this figure has jumped to 18% among respondents this year from 13% in 2022. On top of that, there was also an increase in portion of Australians who said that they did not believe they would be able to afford their home ever from 33% last year to 36% this year.

Experts remained divided on the subject of an increase in first home buyer loans, with AMP’s Oliver citing the government assistance programs as a potential driving factor, but  associate professor Stella Huangfu from the University of Sydney said it “was hard to tell”.

“On the one hand, rising housing prices suggest worsening affordability. That leads to a decrease in the number of first home buyer loans,” she noted.

“On the other hand, the unprecedented large number of migrants provides strong support in the housing market. The intensified demand implies that we should see the number of first home buyers increase in 2024.”