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Michele Bullock holds rates steady at first RBA rate meeting

October 12, 2023

New RBA Governor Michele Bullock’s first rate decision since taking over the reins from the departed Philip Lowe was another welcome one for homeowners.

Despite a few murmurs that the RBA would raise rates following an increase in the monthly inflation numbers released at the end of September, Bullock held the official cash rate at 4.1 per cent for the four consecutive month.

Eyeballs and commentary has now shifted quickly to the November rate decision, which could see the RBA hike one more time if quarterly inflation data comes in higher than expected.

With some interesting data and insights, we’ve analysed what markets are saying about interest rates and their future.

What did RBA Governor Michele Bullock say at the October meeting?

While it was a different RBA Governor producing the statement, the statement itself doesn’t change too much. However there were two obvious notable changes in the statement, which always accompanies a rate decision. They were both related to inflation.

“Inflation in Australia has passed its peak and the monthly CPI indicator for July showed a further decline,” Lowe said in his final statement in September.

But that was before the rise in inflation at the end of September, which showed inflation in August rose from 5.2 per cent in the 12 months to August 2023, up from 4.9 per cent in July.

Bullock said “Inflation in Australia has passed its peak but is still too high and will remain so for some time yet.”

She said “timely indicators”, AKA the monthly inflation updates, suggest that “goods price inflation has eased further, but the prices of many services are continuing to rise briskly and fuel prices have risen noticeably of late.”

She noted rent inflation also remains elevated.

“The central forecast is for CPI inflation to continue to decline and to be back within the 2–3 per cent target range in late 2025,” Bullock added, no different to the RBA’s consistent target.

Bullock was also a little bit more upbeat about the Australian economy compared to Lowe a month earlier.

“The Australian economy is experiencing a period of below-trend growth and this is expected to continue for a while,” Lowe said.

While also referencing the above, Bullock started the paragraph by saying that “Growth in the Australian economy was a little stronger than expected over the first half of the year.”

The rest of the statement was status quo. Bullock concluded by saying that “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.”

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

What’s happening with inflation?

Inflation had been falling from its 8.4 per cent peak in December 2022 which had kept homeowners and the RBA both hopeful and expectant there need be no more interest rate hikes to stem spending.

However, surging oil prices globally, something rather out of Australia’s control, saw the monthly Consumer Price Index (CPI) indicator rise 5.2 per cent in the 12 months to August 2023. It had been 4.9 per cent from the 12 months to July.

There were significant rises in housing (+6.6 per cent), transport (+7.4 per cent), food and non-alcoholic beverages (+4.4 per cent) and insurance and financial services (+8.8 per cent).

ABS head of prices statistics Michelle Marquardt however noted that CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel. If those more volatile items were removed, headline inflation fell from 5.8 per cent in July to 5.5 per cent in August.

What the banks are saying

While Westpac have increased their trimmed mean inflation in 2023 from 3.8 per cent to 4.1 per cent, they don’t expect recent, or future inflation data to suggest a rate hike.

“Despite our slightly higher profile for inflation in 2023, our forecasts are still in line with the RBA achieving their 2025 target,” Westpac Chief Economist Bill Evans said.

“The Governor chose not to react to those possible upgrades to the inflation forecasts – better to await the official September quarter CPI report which will be a key input into any forecast revisions.

“On the basis of our revised inflation forecast we expect the September Inflation Report will provide grounds for the staff inflation forecasts for the end of 2023 to be revised a little higher but not threaten the key goal of reaching the inflation target by 2025.”

Commonwealth Bank, the nation's largest lender, believes inflation will trend towards the two to three per cent range in 2024. They expect monetary policy to remain on hold until mid-2024.

“By the time we get to the November and December RBA Board meetings we expect to see a further weakening in domestic consumer spending and a slowdown in the pace of global economic growth; keeping the RBA on hold into 2024,” CBA Chief Economist Stephen Halmarick says.

ANZ echoed the sentiment, suggesting however that recent data opened the door to another rate hike.

“While we still see the RBA on an extended pause, signs in the August monthly CPI that inflation might be running a little higher than expected are consistent with the risk that the RBA might tighten again this year or early next,” ANZ Head of Australian Economics Adam Boyton says.

“Overall, while the risks of additional RBA action might be rising we see nothing in today’s decision or statement to push us off our view that the RBA is on an extended pause as it examines how the monetary tightening to date washes through the economy.”

What are the experts saying?

Every expert and economist surveyed in’s RBA Cash Rate Survey predicted the October rate hold, however just over 40 per cent believe there will be either one or two more rate hikes.

REA Group xx Cameron Kusher said the economy appears to be shifting in-line with the RBA's expectations. 

“Although the Monthly CPI Indicator was slightly higher yoy in August 2023, I don't believe inflation was strong enough to necessitate a change to the cash rate."

PropTrack senior economist Eleanor Creagh said the full impact of monetary tightening to date is yet to be felt and we’re likely to continue to see inflation moving lower as a result.

“Unless there is a shift in the disinflationary outlook, it’s likely the peak in the cash rate is already in for this monetary policy tightening cycle,” Creagh says.

Tim Lawless, head of research at property data analytics firm CoreLogic, said the RBA is likely to be keeping a close eye on the housing sector.

“Rental pressures are front and centre in the inflation numbers, however the annual change in CoreLogic’s measure of market rents has been slowing since October last year,” Lawless said.

“CPI rents tend to lag market rents, implying CPI rental growth could be close to peaking.”

When will rates start to go down?

CBA economists have pushed out the date they expect rate cuts to start occurring, from March to May 2024.

“The key focus for the monetary policy outlook was on the evolution of prices, wages, the labour market and consumer spending,” Stephen Halmarick said, also noting that global factors are too at play.

“Weighing up the recent data flow and global developments (ie. higher energy prices and central bank rhetoric), we have shifted our base case to expect the monetary policy easing cycle by the RBA to get underway at the 6-7 May 2024 Board meeting. By May 2024, the RBA will have in hand a number of data points that will support the start of a modest easing cycle.”

CBA believes that after the May rate cut of 25 basis points, the RBA would cut three more times in the following five board meetings in 2024 which would take the official cash rate down to 3.1 per cent. 

NAB are expecting inflation to likely rise more than expected in the near term, but they believe that increased unemployment will see the RBA cut in the second half of 2024.

Westpac are forecasting a cut between June and September next year, and then a further cut by December to take the cash rate down to 3.65 per cent. They then also forecast two more rate cuts before June 2025.

ANZ are less pessimistic compared to the rest of the Big Four. They believe the first cut won’t be until Q4 2024.

“The RBA may be hesitant to cut rates any earlier than this since it's unlikely that inflation won't be comfortably back in the band until 2025,” ANZ Senior Economist Adelaide Timbrell said.

What’s happening to house prices?

House prices across the country continued its upswing, with CoreLogic’s Hedonic Home Value Index, showing an eighth consecutive month of positive growth nationally.

South East Queensland continues to lead the price gains, with Brisbane values set to reach a new peak in October. Over September, house values across Brisbane jumped another 1.4 per cent over September to a new median $848,000. The 1.4 per cent jump follows 1.6 per cent gains in August and 1.4 per cent gains in July. The rolling quarterly gain (four per cent) is three times higher than the growth in Melbourne houses (1.2 per cent). 

Brisbane units are also well on the upswing. They rose a further 1.1 per cent over September following August gains of 1.1 per cent and July gains of 1.7 per cent. Units, which incorporates both apartments and townhouses, are now 8.4 per cent higher than they were at the start of the year. The median unit price in Brisbane is now $539,000.

Read more: Shaping SEQ 2023 Review: What does it address?

Gold Coast values are too surging, well past where they were 12 months ago. Another 1.3 per cent jump in values has taken the media values over $700,000, up 6.4 per cent in the 12 months to October. House price growth has been equally sold, up 0.5 per cent over the month to be 5.1 per cent higher than 12 months ago.

PropTrack Senior Economist Eleanor Creagh said national home prices have now reversed last year’s price falls in their entirety.

“One driver of the recovery in home prices this year has been the subdued listings environment, which has seen buyers competing for fewer properties. Home prices have also been underpinned by record levels of net overseas migration, a challenged rental market and an emergent housing shortfall.”

She said the Reserve Bank to continue holding the cash rate steady in October will underpin buyer and seller confidence for the spring selling season.

“Together with a shortage of new home builds, prices are expected to rise and more markets will likely reach new record levels after recouping last year’s fast falls.”

For more information about the new home builds Gallery Group offer, click here.

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