RBA delivers cash rate call for June

It’s a chilly day for the RBA’s first rate call this winter, and the bank’s decision has done little to warm up the mood.

Glacial inflation, scant unemployment and ongoing construction headwinds are making the central bank wary about changing course, according to Westpac senior economist Matthew Hassan.

“Vigilance remains the order of the day until the RBA becomes more confident of achieving a sustained return to sub-3 per cent inflation,” said Hassan.

While recent inflation data will “provide some comfort” to rate watchers, the senior economist warned that the “path is still uncertain”.

Adam Boyton, head of economics at ANZ, warned Australians to not take the extended hold as a bad sign.

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

Nevertheless, he noted that “getting an appropriate balance between the level of demand and supply is likely to take a little longer than expected” due to a noticeable slowdown in economic indicators.

Expanding on the economic slowdown, PropTrack director of economic research, Cameron Kusher, noted that “weak retail sales, slowed economic growth and low consumer sentiment persist”.

“Building activity is at decade-low levels, exacerbated by a lack of new construction, which is creating a chronic shortage of housing. The imbalance between housing supply and demand has offset the higher interest rate environment and deterioration in affordability, fuelling home prices and rents.”

He stated that the “ongoing pause” seen in today’s cash rate decision “reflects the anticipated easing in inflation as the economy, businesses and consumers continue to adjust to the significant interest rate tightening delivered since May 2022”.

For the real estate community, recent economic indicators – along with today’s cash rate hold – could spell a livelier winter property market than usual.

LJ Hooker’s head of research, Mathew Tiller, stated that the hold is “having the desired effect on households and businesses”, with auction clearance rates in Sydney and Melbourne above 60 per cent, and listings numbers increasing.

“It has been a solid start to the winter property market with sellers feeling comfortable they will receive a good result,” said Tiller.

While many commentators remain optimistic about the likelihood of a rate cut by December, a tide of pessimism is beginning to emerge.

Bendigo Bank’s chief economist, David Robertson, recently reiterated the bank’s position that a rate cut would not take place until mid-2025, claiming that those who hope for a rate cut in 2024 are “setting themselves up for disappointment”.

“The latest RBA statement on monetary policy now forecasts core inflation to be still well above target at year end.”

“While the possibility of another hike is always there […] we still favour no move up or down from the RBA this year,” said Robertson.

Some economists are even more cynical about the possibility of a downturn, with Judo Bank’s Warren Hogan and Matthew De Pasquale stating we may “need a miracle” to avoid further rate hikes.

“There is a good chance that we get through this next 12 months with a 4.35 per cent cash rate, but it’s not the central (most likely) pathway.”

“The next monthly CPI and then the quarterly CPI numbers are critical. We continue to expect a 25 bps rate hike in August,” concluded Hogan and De Pasquale.