RBA eyes rate cut in February as inflation figures surge
The RBA rate cut in February is becoming more likely following the latest consumer price index results and Westpac’s decision to bring forward its first cash rate cut.
The latest Australian Bureau of Statistics (ABS) data showed that the consumer price index (CPI) rose by 0.2 per cent in the December quarter to reach an annual rate of 2.4 per cent, down from 2.8 per cent and 3.8 per cent in the September and June quarters, respectively.
The new 2.4 per cent annual inflation figure is the lowest since March 2021 and within the Reserve Bank of Australia’s (RBA) target band of 2–3 per cent.
Additionally, the trimmed mean inflation, which reduces irregular large price rises and falls, has dropped from 3.6 to 3.2 per cent over the quarter.
ABS data showed that the trimmed mean inflation rate is now at its lowest annual rate since December 2021, below the peak of 6.8 per cent recorded at the end of 2022.
Similarly, the weighted mean dropped to 3.4 per cent in the year ending December 2024, compared to 3.7 per cent in the year ending September.
Real Estate Institute of Australia (REIA) president Leanne Pilkington said borrowers can be optimistic about having a rate cut sooner rather than later.
“The latest figures support market expectations of a rate cut at the next RBA meeting in February. This would provide a welcome relief for borrowers and improve affordability for first home buyers,” Pilkington said.
She said the inflation rate drop was partly driven by the federal government’s temporary electricity subsidies.
“The main reasons for lower CPI inflation were due to a fall in prices for electricity and automotive fuel and moderating price rises for new dwellings, with the most significant quarterly price rises being for recreation and culture, up 1.5 per cent, and alcohol and tobacco, up 2.4 per cent,” Pilkington said.
Following the CPI’s results, Westpac brought forward its first projected cash rate cut from May to February 2025.
The bank has now joined CBA, forecasting four rate cuts starting in February.
Out of the big four, NAB is the only bank expecting the first rate cut in May.
According to Canstar’s data, borrowers with a $600,000 loan term and 25 years remaining could see their monthly repayments decrease by $92 if one cut occurs.
Under two cuts, the drop in monthly repayments could be $183 and $359 for four cuts.
Canstar data insights director, Sally Tindall, said the CPI results were a step forward for borrowers and will most likely be well-received by the RBA in their February meeting.
“While there are still some sticking points in the data, particularly around insurances, rents and education, it’s fantastic to see inflation for things like non-discretionary items fall to 1.8 per cent,” Tindall said.
“This really helps to take the pressure off family budgets across the country.”
Tindall said that despite annual core inflation not being in the RBA’s target band yet, the latest CPI results should be close enough for the RBA to call the interest cut.
“The RBA knows how tough it’s been for borrowers with a mortgage and also renters under the pressure of the current cash rate,” she said.
Across the country, rents increased by 6.2 per cent over the 12 months to December.
Master Builders Australia said declining rates benefit new construction activity as high interest rates on business costs have prevented investors from starting new projects.
The construction peak body said while the CPI’s results are welcomed, housing-related inflation must be controlled to relieve the high cost of living.
Master Builders Australia CEO, Denita Wawn, said the need to boost housing supply is pressing as the lack of housing supply leads to rising rents, homelessness and higher mortgages.
“Australia desperately needs to boost housing supply, and this will only be achieved when the cost of new home building starts to moderate, and project costs stack up,” Wawn said.
“It’s more than just a number; [it] negatively impacts the wellbeing of individuals, families and communities.”
The RBA’s first meeting, which will be held on 18 February, will decide whether to cut interest rates.
Tindall said that until a rate cut is officially announced, borrowers should manage their finances as usual.
“Of course, there’s no guarantee the RBA will move next month. Services inflation could still be keeping the board up at night, enough to keep the cash rate in its current holding pattern for another couple of months. So if you’ve got a mortgage, don’t bank on rate relief until it hits your bank account,” Tindall said.
“While the RBA meeting is just under three weeks away, borrowers don’t need to sit and wait for our central bank to make a decision; pick up the phone today and haggle with your bank for a rate cut,” Tindall concluded.