Reserve Bank of Australia (RBA) eases ahead of its own meetings on Monday and Tuesday. After some ups-and-downs, market analysts and economists are largely united in their expectations that the next change to the cash rate target will be upwards. The RBA cut the interest rate to 3.6 percent at its August meeting, its most recent meeting. This decision seeks to address the current economic crisis brought on by high inflation and elevated borrowing costs.
Upcoming meetings
Meeting series
November 3–4, 2023
December 8–9, 2023
Creators, innovators and industry professionals are out in full force sharing their perspectives on what our future could (or should) look like.
The strongest RBA measure of inflation, their preferred measure, is the annual trimmed mean. It did come in at 2.6 percent for the year ending in August. This figure is comfortably within the RBA’s inflation target range of 2 to 3 percent. This can be taken as a sign that recent economic pressures are starting to level off. The average variable mortgage rate is currently still around two percentage points above the RBA cash rate. This continuing lacuna makes it all the more financially burdensome to consumers.
Diverse Predictions from Major Banks
Major banks are mixed in their forecasts of when the first cut will come. The Australian and New Zealand Banking Group (ANZ), Commonwealth Bank, and Westpac all anticipate that the RBA will implement a rate cut during its November meeting. This consensus among these institutions reflects a belief that the current economic landscape may warrant further easing of monetary policy.
The National Australia Bank (NAB), on the other hand, is taking a much more cautious approach. They’ve ruled out the possibility of any more rate cuts this year. NAB now forecasts the next cash rate increase will be as late as May 2026. The downgrade is a stark reversal from the more optimistic predictions made by other institutions just months prior.
Per the RBA’s website, the cash rate is the interest rate on overnight loans between banks. This is done overnight in the money market. This basic premise of the cash rate is key to understanding its importance in steering overall financial conditions.
Market Sentiment and Economic Indicators
Fewer than one-in-ten economists, overall, are expecting the Fed to cut rates at this month’s meeting. Financial market bets underscore this uncertainty. Indeed, predictions place the likelihood at around a 50-50 chance that there will be a rate cut by Melbourne Cup Day. This double-edged enthusiasm is symptomatic of a deeper ambivalence across the market towards radical short-term shifts in monetary policy.
The RBA’s decisions typically lead to swift reactions from major banks, which announce their own rate adjustments within hours following the RBA’s announcement. This pattern speaks to the extent to which our banks are willing to pay attention to the RBA’s monetary policies and their impact on borrowers and depositors, as well.
“It influences all other interest rates, including mortgage and deposit rates.” – RBA’s website
Implications for Consumers and Borrowers
For Australians trying to keep on top of their growing financial obligations, the current cash rate has immediate impacts on home loan and savings account rates. With many Australians feeling the weight of rising living costs, particularly in housing, the discussion around interest rates becomes increasingly critical.
If the RBA does cut rates next month, borrowers will see some long overdue relief. For the last few months, they have been reeling from the impact of the ever increasing cost caused by the recent spike in interest rates. NAB’s forecast points to any relief being further out of reach for a long time to come.
