Millions of Aussie mortgages brace for big interest rate change

Daily Mail​

20 hours ago

Aussie home borrowers are being brutally deprived of another much-needed rate cut despite inflation being on the low side - surprising financial markets. The Reserve Bank of Australia has left the cash rate on hold at 3.85 per cent, confounding financial markets that had regarded a Tuesday afternoon rate cut as a 97 per cent chance as recently as last night.
For weeks, economists had been confidently predicting a July 8 rate cut, with the interbank lending futures markets last week even suggesting it was a 100 per cent chance, with inflation now on the low side. Australia's weak economy had also convinced the experts at the Big Four banks that the Reserve Bank would move as soon as possible, rather than waiting until August following the release of more comprehensive quarterly inflation data.
But Governor Michele Bullock (pictured) said underlying inflation, without big price drops, was still too high despite being within the RBA's two to three per cent target, adding borrowers shouldn't expect big rate cuts as $75 electricity rebates artificially suppressed prices. 'It may be we don't need to reduce rates as much as other countries have done,' she told reporters. 'Reasonable people can differ in their interpretation of data.'
For the first time ever, the RBA revealed the vote of its new monetary policy board with six in favour and three against, which means Ms Bullock could potentially be outnumbered and lacking authority as central bank chief. 'They're unattributed votes: I won't reveal how I voted,' she said. 'They're unattributed for a reason so the answer to that is I won't tell you how I voted.' The RBA didn't reveal which board members voted for or against keeping rates on hold, but Ms Bullock said there was unanimous agreement that rates were likely to keep falling. 'The difference was not about direction, it was about timing,' Ms Bullock said. 'I do understand that households with mortgages are very to see interest rates decline because it helps them with cashflow.'
Ms Bullock however suggest inflation was only within target because of $75 quarterly electricity rebates that expire in late 2025. 'I understand why people think we've hit that inflation target, in the sense that the headline inflation people face is down sort of around the target but that's an artefact of certain subsidies,' she said. 'Real consumers, because they are getting the subsidies, but they'll roll off.'
The Reserve Bank suggested Donald Trump's tariffs were delaying a rate cut, with the 90-day pause expiring on Wednesday night, Australian time. 'There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments,' the RBA board said.
Treasurer Jim Chalmers (pictured), who introduced a new specialist monetary policy board to decide the cash rate, expressed his disappointment. 'I acknowledge, there will be millions of Australians around the country who were desperately hoping for more rate relief today in addition to the two rate cuts that we've already seen over the last five months,' he told reporters in Canberra on Tuesday. 'This decision will comes as a surprise to the market and to almost every economist who's expressed a view in recent days.'
Economists with Australia's Big Four banks were all forecasting relief and thought the RBA would move on Tuesday instead of waiting until August, following the late July release of June quarter inflation data. But the RBA on Tuesday suggested it could still wait. 'With the cash rate 50 basis points lower than five months ago and wider economic conditions evolving broadly as expected, the board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis,' it said.
Pricing for a rate cut had surged in late June after new Australian Bureau of Statistics data showed monthly headline inflation growing by just 2.1 per cent in May, putting on the low side of the RBA's two to three per cent target. 'We think that level of volatility is not representative of what's going on with inflation,' Ms Bullock said.
This was lower than the March quarter's 2.4 per cent inflation pace but the RBA commentary on Tuesday suggests another low number would be needed for the June quarter to justify another rate cut in August. Underlying inflation in the March quarter was higher at 2.9 per cent, and was only in the RBA band for one quarter. Australia's economy also grew by just 1.3 per cent in the year to March, a level well below the long-term average of three per cent.