RBA interest rates to be paused at 4.1%, economists predict for October meeting

The new governor of Australia’s central bank is poised to make a decision on the nation’s interest rates just days into the new job.

Michele Bullock took over Philip Lowe’s role at the Reserve Bank of Australia (RBA) earlier this month, with her first monthly meeting taking place on Tuesday afternoon.

It’s widely expected the bank will pause rates, in what will be the fourth consecutive month of rates remaining on hold.

Millions of homeowners will most likely be spared more economic pain but for some it could be too late.

Some economists are starting to forecast when rates might start to get cut as inflation shows clear signs of being brought to heel.

The RBA has increased interest rates every month since May last year, with the exception of April, July, August and September this year, when rates were momentarily paused.

Still, as it stands, Australians are in the throes of the nation’s highest cash rate since 2011, enduring 400 basis point increases over the space of a year. The cash rate has jumped significantly from the historic pandemic low of 0.1 per cent to its current rate of 4.1 per cent.

A whopping 600,000 Australians will fall off the mortgage cliff in coming months in some bad news.

And on Monday, secret internal RBA documents revealed that affluent Aussies were among a growing number of people seeking urgent financial support as their mortgages continue to balloon.

New analysis from RateCity.com.au has found that 730,000 mortgage holders have already lost their fixed rate scenarios so far this year.

A further 150,000 Australians will join their ranks between now and the year’s end.

Another 450,000 homeowners are expected to drop into the mix of variable rates next year.

This brings the total amount to 600,000 Australians to make the sharp and sudden fall off the mortgage cliff.

Meanwhile, secret briefings inside the Reserve Bank reveal a startling surge in the number of middle-class Australians on six-figure salaries seeking a financial crisis support.

In July, members of the RBA’s Financial Stability division met with representatives from the National Debt Helpline – a resource offering those in need access to free financial counselling.

Engaging with the service is often a requirement of banks when borrowers are unable to meet some or all their home loan repayments, but anyone in distress can seek help.

Notes from the briefing, sent as a confidential internal memo to analysts at the central bank, have been released under Freedom of Information laws.

They reveal the NDH has seen a “significant increase in hardship requests” over recent months – especially from Aussies running into strife for the very first time.

“The NDH is experiencing an increasing volume of calls from people who have not experienced financial hardship or drawn on social services previously,” the memo reads.

“Many callers were gainfully employed. Examples were given of mortgagees on six figure salaries residing in prosperous suburbs of Sydney.”

And even with the expected interest rate pause later on Tuesday, it could be more bad news for Australian homeowners as some experts forecast that rates may not get cut until 2025.

Bond markets, which forecast future interest rates, are suggesting that interest rate cuts may no longer be on the cards for 2024, and it’s a view shared by a former senior economist at the Reserve Bank of Australia (RBA).

Challenger chief economist Jonathan Kearns, who was head of domestic markets at the RBA until March this year, told news.com.au on Monday that he doesn’t see interest rates falling until 2025.

Mr Kearns said that Australia was now facing “a long plateau rather than a peak in rates” and that “if there is a move in the next 12 months I think it’s more likely to be up than down”.

But it also comes as global economists think that from a world perspective, the worst of the financial crisis is behind us.

Last week, multiple central banks opted to hold interest rates in a strong sign that inflation is well past its peak.

Central banks in the US, UK, Japan, and Switzerland all paused interest rates amid signs of inflation abating.

Jennifer McKeown, chief global economist at Capital Economics, told The Financial Times that this was a “milestone” moment for the global economy, which has been teetering on the brink of a worldwide recession for the past year.

“We have reached a milestone in the global monetary policy cycle,” she said. “The global monetary tightening cycle has ended.”

– With Shannon Molloy and Michelle Bowes

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