No festive rate cut from Australia’s Central Bank

Borrowers nationwide will have to wait a little longer for relief after the RBA maintained the official cash rate at 4.35% today following the final board meeting of 2024.

While inflation is within the target band at 2.8%, underlying inflation is around 3.5%, ‘which is still some way from the 2.5 per cent midpoint of the inflation target,’ explained the RBA today, dousing some forecasts of a 2025 cut. 

‘The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026.

‘While underlying inflation is still high, other recent data on economic activity have been mixed, but on balance softer than expected in November,’ the Central Bank noted. 

Clearly, underlying inflation needs to shift downwards for the RBA to feel comfortable in dropping the official cash rate. 

However, with some lenders already dropping some of their rates, many market experts and banks are still anticipating a rate cut in the first six months of 2025. 

This view is potentially supported by RBA board meeting minutes in November which noted that Australia’s Central Bank wants to see more than one good quarterly inflation number before it would be confident enough to cut its rate. 

By the end of April 2025 there would have been two sets of quarterly inflation reports to digest by the board.  

If these reports were positive, then 20 May 2025 could be the big day when the official cash rate may be reduced. Who knows, though. 

Adding to the discourse is the impending federal election, which must be called some time before 17 May next year. 

What do major banks think? Westpac updated its outlook last month, tipping consecutive reductions in late May and early July. 

Other big banks believe the first rate cut could happen in February with a gradual rate of reductions through the year. 

‘Most central banks have eased monetary policy,’ conceded the RBA today, ‘as they become more confident that inflation is moving sustainably back towards their respective targets. 

‘They note, however, that they are removing only some restrictiveness and remain alert to risks in both directions, namely weaker labour markets and stronger inflation. Geopolitical uncertainties remain pronounced.’ 

The RBA’s next update will be on 18 February 2025. 

If you would like to review your home loan arrangements, contact Mortgage Broker Group. 

We can help you with tips on how to uncover lower rates, boost your savings, consolidate other debts and take the pressure off increases in household prices.

Mortgage Broker Group operates nationwide, and our service is 100% free to you (although your lender may apply fees and charges to any loan you take out).

Finally, on behalf of Mortgage Broker Group, we would like to wish all our valued clients a festive season full of joy, and we hope you have a happy new year.