After a short summer break, we’re well and truly back in action. With the RBA due to release their next Monetary Policy Decision on February 18, Cash Rate forecasts have been realigned, considering the latest inflation data for the December quarter. The CBA, ANZ, Westpac and NAB have all brought forward their rate cut forecast to February 2025. Now, we should absolutely keep in mind that the forecasts made by the major banks over the past 12 months didn’t come to fruition…let’s see what happens in a few weeks time and hope for the best.
What is happening with inflation?
The quarterly Consumer Price Index (CPI) again remains within the RBA’s target range of 2–3 per cent. However, the decline in inflation has been largely attributed to government interventions, such as a 10 per cent increase in Commonwealth Rent Assistance in September 2024 and energy rebates, rather than natural price reductions. Figures released on the 29th of January show that CPI increased by a modest 0.2 per cent this quarter, bringing annual inflation down to 2.4 per cent in the December quarter from 2.8 per cent in September. The small increase was attributed mostly to holiday season spending.
Underlying inflation, which adjusts for irregular or temporary price changes, remains slightly above the RBA’s target range. According to the ABS, the trimmed mean annual inflation was 3.2 per cent in the December 2024 quarter, down from 3.6 per cent in September. A key factor in the decline was easing goods inflation, which fell to 0.8 per cent—the lowest level since 2016—down from 1.4 per cent in the previous quarter.
How are lenders and the market reacting?
Lenders are gearing up for anticipated rate cuts. Earlier this month, Macquarie Bank reduced interest rates on select fixed-rate mortgages in preparation for potential decreases. Owner-Occupied borrowers can now obtain a 1 year fixed P&I rate from 5.69% (comparison rate 6.12%) or a 2 year fixed P&I rate from 5.55% (comparison rate 6.05%). Investment borrowers are offered a 1 year fixed P&I rate from 5.85% (comparison rate 6.31%) or a 2 year fixed P&I rate from 5.69% (comparison rate 6.24%. It may still be too early to fix, but for those stuck on higher variable rates, these fixed options are becoming more attractive.
New business variable rates are yet to significantly react to the forecast rate cuts, but we’ll keep an eye on this space.
*The information provided in this article is general in nature and does not take into account your personal circumstances. Since everyone’s personal situation is different, this article should not be taken as advice. Market commentary is based on recent economist reporting and references can be made available upon request.
