Rate cuts, potentially this year
Senior economists from NAB, Macquarie and ANZ suggest the cash rate will peak at 4.1 per cent before rates fall. Even with cost of living pressures mounting, spending seems to continue, and oddly enough, our level of savings, on the whole, hasn’t reduced as expected. We still have really low unemployment too, so it’s predicted that next month we’ll see yet another rate rise to cool the economy. Money markets on the other hand, are pricing in rate cuts a little earlier than expected. This week’s retail sales and inflation figures will determine the course of action.
To pause or hike?
Data on retail sales (28 March) and inflation (29 March), will be closely monitored this week by the Reserve Bank of Australia (RBA) when considering to either hike or pause next month (4 April). Rate hikes from the US Federal Reserve along with central banks abroad, over the last few weeks, suggest that maybe we’ll be doing the same here in Australia and looking at an 11th consecutive rate rise.
On the other hand, AMP’s Chief Economist, Dr. Shane Oliver, believes that the RBA will pause in April but maintains that it’s a very close call.
According to the ANZ-Roy Morgan survey, their media release on 21 March confirmed, consumer confidence is really low and it decreased by 0.5 points last week to 76.5, it's third consecutive week below 80. This score is based on 1,482 interviews conducted online and over the phone, weekly.
As we know, confidence is low because of people paying high variable interest rates, borrowers converting from super low fixed to very high variable rates, broader cost of living pressures, and also because of threats to the banking sector. Based on consumer confidence being at such a low it is arguable the sensible move for the RBA would be to pause next month, sit back and take stock.
Money markets suggest early rate cuts
Data from MarketWatch, (you can obtain this data from multiple sources), shows that bond yields aggressively nosedived recently. This is the money market saying that rates have peaked with possible rate cuts to arrive later this year or early next. Markets must believe that the economy will worsen this year and there is tail risk going into the end of 2023. Or maybe it's the theory that there is potential contagion for the economy from these rumblings through the global banking sector, with a possible hard landing, causing the RBA to have to reverse course soon - and cut rates. Off the back of this bond yield movement, and a few other factors, we’ve already seen a few of the 30 plus lenders on our panel reduce their 2 and 3-year fixed home loan rates. If these low yields stick around we will likely see more banks drop their fixed rates.
A resilient economy
ANZ’s senior economists believe that Australia will avoid a recession due to low unemployment, strong savings buffers, and the level of construction, but first-home buyers with low-income levels and renters will be most impacted. There’s no evidence from the banks yet that we’re seeing mortgage delinquencies, not even for first-home buyers, but if we do and it is likely, we’re increasing from a very low base.
The RBA sets policy for the aggregate, not the minority, and as an aggregate, the economy is handling things well. Even the property market has had a recent spike. The Corelogic 28 day rolling price change, indicates that weakness has abated. Clearance rates from the weekend were also strong, sitting at 71.1 per cent nationally. This hasn’t been expected by economists but clearly, this outlines the tightness in the residential market and if the most rate-sensitive segment is showing signs of resilience, there’s another unwanted or unnecessary upside risk the RBA doesn’t necessarily need.
On the jobs side, unemployment continues to stay low, even as inflation lingers, see below. ANZ believe this will rise to 4 per cent or so, but in any case this is coming off a very low base.
Final thoughts
As a whole, the economy is doing pretty well but inflation persists. The main objective of the RBA is to reduce or tackle this inflation with interest rates and this is a reactive measure that can make it a blunt tool. Even though there are some doing it tough out there with the high cost of living, in particular those renting or our first home buyers on lower income levels, and consumer confidence is low, it’s the majority or the aggregate numbers that the RBA is looking at. It’s a super challenging environment for the RBA and in particular in NSW, for the new Premier Chris Minns to walk into. Fingers crossed for a rate pause in April and our money markets have got it right.
It’s important to ensure your lending solution is in your best interests to tackle this challenging period and that each loan application is with the lender who’s conditions meet your specific requirements. We've worked very hard to create long-lasting, fostered relationships with all the 30 plus lenders on our panel, to ensure all our borrowers here at Black & White Finance are on the best terms available. Our finance strategies now more so than ever, need to be smart and in our best interests, to tackle this inflationary economic landscape.
If you want to know more about the different rates, terms, or bank specials on offer at the moment or just have a general question, please send a note to peter@blackandwhitefinance.com.au or click the start today button a little lower. With the help of our amazing Mortgage Broker Sydney – Black and White Finance team, we will be able to support you.
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