Tuesday, July 16, 2024
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RBA releases June interest rate outlook

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The central bank opted to keep its policy rate unchanged at 4.35% for the seventh consecutive month.

It was a chilly day for the Reserve Bank of Australia (RBA) to announce interest rates for the first time this winter, and the bank’s decision did little to warm the mood.

Matthew Hassan, senior economist at Westpac Banking Corporation, said continued low inflation, low unemployment and headwinds from the construction sector were making the central bank cautious about changing course.

“We need to remain vigilant until the RBA has more confidence in a sustained return to sub-3% inflation,” Hassan said.

The latest inflation data will “provide some relief” to rate watchers, but a senior economist warned that “the path remains uncertain”.

ANZ Bank’s head of economics Adam Boyton warned Australians not to take the extended hold on interest rates as a bad sign.

“It’s not that monetary policy isn’t working, it’s that it is working,” Boyton said.

But he noted that due to a notable slowdown in economic indicators, “striking the right balance between demand and supply levels may take a little longer than expected.”

Cameron Kusher, director of economic research at PropTrack, elaborated on the economic slowdown, noting that “weak retail sales, slowing economic growth and weak consumer confidence continue.”

“Residential construction activity is at its lowest level in a decade and a lack of new homes is creating a chronic housing shortage. The imbalance between housing demand and supply is offset by rising interest rates and home affordability, pushing up home prices and rents.”

He said the “continued pause” seen in today’s rate decision “reflects that inflation is expected to moderate as the economy, businesses and consumers continue to adjust to the significant interest rate tightening implemented since May 2022.”

For the real estate industry, recent economic data and today’s interest rate freeze could mean a stronger than average winter real estate market.

LJ Hooker head of research Matthew Tiller said the suspension of auctions was “having the desired effect on households and businesses”, with auction success rates in Sydney and Melbourne exceeding 60 per cent and the number of listings increasing.

“The winter real estate market is off to a strong start and sellers are feeling confident they will get a good result,” Tiller said.

While many commentators remain optimistic that a rate cut will occur by December, pessimism is also beginning to grow.

Bendigo Bank chief economist David Robertson recently reiterated the bank’s position that interest rate cuts would not come until mid-2025, arguing that those hoping for a rate cut in 2024 were “set to be disappointed”.

“The RBA’s latest monetary policy statement projects core inflation to still be well above its target at year-end.”

“There’s always the possibility of an interest rate hike. […] “We still hope that the RBA will not raise or lower interest rates this year,” Robertson said.

Some economists were more skeptical about the possibility of a recession, with Judo Bank’s Warren Hogan and Matthew De Pasquale saying it might “take a miracle” to avoid further rate hikes.

“We’re likely to get through the next 12 months with 4.35% interest rates, but that’s not the primary (most likely) path.”

“The next monthly and quarterly CPI figures will be important as we continue to expect a 25bps rate hike in August,” Hogan and De Pasquale concluded.

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