Interest Rate News for December 2023
After raising the interest rate by 25 basis points in November, from 4.10% to 4.35%, the Reserve Bank of Australia (RBA) has decided to keep the cash rate steady, pausing it at a 12-year high of 4.35%.
What is the cash rate?
The Official Cash Rate (OCR) is the interest rate paid by banks to borrow money from other banks in the money market overnight. This rate impacts all other interest rates, such as mortgage rates. The RBA uses it as a target for implementing monetary policy. The Board of the RBA meet once a month, 11 months of the year, to assess the country’s financial situation and decide on what cash rate is best suited to meet broad economic objectives.
Keeping inflation in control.
A primary goal in determining the cash rate, is maintaining inflation between 2 and 3 percent. In a statement on the latest Monetary Policy Decision this month, Governor Michele Bullock explained that, “High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest and worsens income equality.”
Forecast going in to 2024
According to Governor Michele Bullock, “There are still significant uncertainties around the outlook. While there have been encouraging signs on good inflation abroad, services price inflation has remained persistent and the same could occur in Australia.”
So have we seen the end of interest rate increases, and will the RBA be lowering rates in the beginning of the new year?
Well this will depend on evolving risk assessments. The RBA will wait to assess data on developments in areas including the global economy, domestic demand, inflation and the labour market. Governor Michele Bullock stated that the RBA “remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
As inflation is not currently forecasted to go back to the RBA’s target until late 2025, it may be some time before we see interest rates lowered. Madeline Dunk, an economist at ANZ, has said that if the current momentum continues, “it does the support the case that they can be done at 4.35%”. The next RBA meeting will occur on February 6, 2024.
Written by Natalie Estalote Astill
Mortgage Broker at Paramount Home Loans Illawarra, working in partnership with illawarra Mortgage Brokers
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