Brokers expect RBA to hold cash rate

So far in 2023, the RBA has increased the cash rate a total of five times, most recently at its previous cash rate decision in November, where it lifted the interest rate to 4.35 per cent.

The central bank cited that the argument to raise the cash rate came as the outlook for inflation was “stronger than it had been some months earlier”.

However, with the latest monthly Consumer Price Index (CPI) indicator data (released on 29 November by the Australian Bureau of Statistics (ABS)), revealing that inflation had dropped from 5.6 per cent in September to 4.9 per cent in October, the argument for another hold is building.

Speaking to The Adviser, director of Zippy Financial, Louisa Sanghera, said there is “absolutely no justification for another interest rate increase”.

“In fact, I believe the rate hike in November will prove to have been too heavy-handed in the months ahead,” Ms Sanghera said.

“We have seen monthly inflation fall by more than forecast in October and retail spending fall by 0.2 per cent in the same month, too.

“Plus, many of the new or existing borrowers we speak with have absolutely no chance of refinancing at the current interest rates, with a lot of them technically not servicing their existing debt levels.”

The broker added that borrowers over “the past two to three months in particular”, have grown more desperate, with many home owners “turning to interest-only repayments as the only way they can continue to hold on to their homes”.

“Unfortunately, their current lenders don’t necessarily offer interest-only to owner-occupiers – and they can’t refinance – so, they may need to sell or opt for a repayment pause to keep the roof over their heads,” she said.

Sharing a similar sentiment, Home Loan Experts chief executive Alan Hemmings and senior mortgage broker Jonathan Preston both agreed that the RBA will decide to hold in this meeting.

Mr Hemmings further stated that another hold would give the central bank a few more months of information prior to its February meeting.

“I would note the decrease in inflation was on goods, generally imports,” he said.

“Next year, the RBA will meet in February and March before breaking in April.

“I think having less frequent meetings means they will be faster to increase rates and slower to decrease them. Depending on what happens with Christmas spending, we could see an increase in February because inflation is still not near the 2–3 per cent band.”

CEO of aggregator Finsure Group, Simon Bednar, said he believes rates will hold steady and that the RBA will want to observe the impact of the November increase leading into the holiday season.

“Since the November meeting on Melbourne Cup Day, there has a been a slight increase in unemployment, lower than expected inflation and a slowing of retail and house price growth,” Mr Bednar said.

“I think when considering this, the RBA will wait. However, they won’t hesitate to increase again in February next year if they see a reversal of these trends.”

Mark Haron, executive director at Connective, said last week’s inflation figures could have borrowers “holding their breath for a temporary pause”.

“However, an increase is still possible and could alarm borrowers who look to their broker to help them navigate the complex lending environment,” Mr Haron said.

“Borrowers are constantly seeking ways to improve their financial situation. And with the fixed-rate cliff continuing to stretch through to early 2024, brokers can have many valuable discussions with their clients.

“The opportunity is to ensure brokers demonstrate their value and have the tools to connect with clients and work with them to make decisions that match their needs.”

In addition, economists from Australia’s major banks have all agreed that the RBA will hold the cash rate at 4.35 per cent, while the ASX RBA Rate Indicator has shown the market expects a 98 per cent chance of “no change” (as of 1 December).

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