Reserve Bank of Australia holds interest rates at 4.35 per cent in November decision.
Homeowners hoping for interest rate relief ahead of the busy Christmas season have been left disappointed, as the Reserve Bank of Australia held the cash rate on Tuesday.
In Tuesday’s decision, the RBA held rates again at 4.35 per cent for the eighth time in a row.
The cash rate has remained at a 12-year high since last November's most recent hike.
The bank’s board expressed concern about persistently high underlying inflation, projecting it won’t settle within the target range of 2 to 3 per cent until 2026. They noted, “Inflation has seen a significant drop from its peak in 2022, largely thanks to higher interest rates that are helping to balance supply and demand.”
Despite this decline in headline inflation, which is expected to remain lower for some time, the board emphasised that underlying inflation, a key indicator of inflation momentum, still poses a challenge. They stated, “Policy must remain sufficiently restrictive until we’re confident that inflation is sustainably trending toward our target range. We are committed to returning inflation to target and will take necessary steps to achieve that.”
Economists largely anticipated that the cash rate would remain unchanged in the board's Tuesday decision, given that underlying inflation has yet to slip into the RBA’s desired zone. Recent data revealed a steady decline in price growth, with headline inflation now at 2.8 per cent—back within the RBA’s target range and boosted by government energy bill rebates.
Looking ahead, economists from the major banks predict the RBA might begin slashing rates by February. However, traders seem more cautious, not anticipating a 25 basis point cut until June.
In a related note, Treasurer Jim Chalmers highlighted last week that Australia is making “welcomed, encouraging, heartening progress in the fight against inflation.” Yet he cautioned, “We know people are still feeling the pinch, and the battle’s not over yet.”
The implications of the RBA's decision on you.
For Mortgage Holders
The unchanged cash rate stabilises monthly repayments for existing variable-rate mortgage holders, offering a moment of relief amidst the rate hikes of recent years. However, with underlying inflation still above target, borrowers should remain prepared for potential rate increases in 2025 if inflation does not recede.
For Investors
Higher interest rates can present mixed outcomes for investments. While fixed-income assets like bonds may offer better returns in a high-rate environment, equity markets may experience volatility due to increased borrowing costs for companies.
Investors may need to reassess their portfolio strategies to balance risks associated with both inflation and interest rate stability.
For Insurance Policyholders
Insurance premiums can also be impacted by inflationary pressures, as rising costs influence claims and underwriting expenses. With the RBA’s continued vigilance over inflation, insurers may adjust premiums to account for higher claims costs. Policyholders should review their coverage to ensure it remains adequate and cost-effective, especially if inflation affects the replacement value of insured assets.
How Fync can help you navigate these shifts.
In an economic environment marked by cautious optimism and lingering uncertainty, it’s essential for businesses and individuals with financial products to stay informed and adaptable. Fync offers a range of services designed to help you optimise your financial strategies.
Services to help you:
Budgeting and Planning: With the possibility of sustained high interest rates, Fync can assist you in budgeting effectively to manage loan repayments and other financial commitments.
Financial Product Analysis: We help you evaluate your current financial products to determine if they align with your long-term goals in a high-rate environment.
Investment Strategy Review: Fync’s experts can guide you in balancing your investment portfolio to protect against rate volatility while pursuing growth opportunities.
Risk Management for Insurance: Rising costs in insurance mean reviewing policies is crucial. We provide insights into coverage adjustments that meet your evolving needs without overpaying.
Key Takeaways
The RBA’s decision to maintain the cash rate at 4.35% reflects a commitment to controlling inflation while monitoring economic growth and labour market conditions. For financial service consumers, this stability in rates is a moment to assess, strategise, and prepare for potential future shifts. With a cautious eye on inflation, the RBA’s monetary policy will continue to impact the cost of borrowing, investment returns, and insurance premiums.
Understanding these economic signals empowers you to make informed decisions about your financial products, whether you're managing a mortgage, investment portfolio, or insurance policy. At Fync, we’re here to help you navigate these complex shifts, providing the expertise and resources to adjust your strategies for changing economic conditions. If you’re ready to optimise your financial plan and make the most of the current rate environment, visit the Fync website today and connect with our professionals for personalised guidance.
*Disclaimer: Please note that the information provided in this communication is for general informational purposes only and should not be construed as professional advice. It is not intended to substitute for personalised financial, legal, or tax advice. Please consult a qualified professional before making any decisions based on the information provided.