The Reserve Bank of Australia (RBA) has lifted the country’s official interest rate almost every month since its most recent tightening cycle began in May 2022.
The resulting 400 basis points worth of hikes has taken the cash rate from a historic low of 0.10% to 4.10% by June.
But in July and August, the central bank took its foot off the accelerator, leaving the cash rate unchanged at 4.10%.
As a result, you might be wondering if this marks the end of interest rate rises or if there’s yet more pain to come.
Have interest rates hit their peak?
‘Worst is over’
Well, to answer that question, you need to understand why the RBA has been lifting interest rates in the first place: to curb inflation.
Interest rate hikes are the central bank’s main tool to lower inflation. They do this by raising the cost of borrowing which, in turn, reduces consumer demand. If consumption falls, companies will, in theory, lower their prices to keep customers, ultimately reducing inflation.
And the strategy appears to be working.
The Australian Bureau of Statistics’ most recent consumer price index showed annual inflation cooled to 6.0% in the June quarter, down from 7% in the March quarter. However, this is still notably above the RBA’s 2-3% target range.
As such, in the statement accompanying August’s decision, RBA governor Dr Philip Lowe indicated that further monetary tightening might be necessary to bring inflation back within the target range.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” he said.
“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
But while he might have left the door open for future tightening, Dr Lowe told a subsequent parliamentary hearing that the “worst is over” for interest rate rises.
What do the major banks predict?
As the Mozo table below shows, three of the four major banks believe the cash rate has peaked at 4.10%, with NAB the only one to expect one more increase later this year.
Westpac chief economist Bill Evans then expects a total of six rate cuts starting from the September quarter 2024, which would bring the cash rate down to 2.60% by late 2025.
Commonwealth Bank has pencilled in four rate cuts next year, starting in March, that would bring the cash rate to 3.10%.
How might this impact the property market?
While there’s every chance the RBA might still increase the cash rate, there’s clearly light at the end of the tunnel. As such, if we haven’t already reached the peak of the interest rate cycle, most economists think we’re very close.
CoreLogic executive research director Tim Lawless said this should, in turn, boost consumer confidence.
“Consumer confidence and housing activity go hand in hand. Generally, when sentiment is low, home sales are low and vice versa; so, any lift in sentiment is likely to be accompanied by a rise in active buyers and sellers,” he said.
Given the outlook this could be a great time to buy an investment property, with the help of a full-service buyer’s agency like James Chase.
Book your free 30-minute consultation to get started.
