What to expect from the RBA’s next announcement

Once again, we wait in anticipation of the RBA’s September announcement on the cash rate and the impact this will have on the economy.

This is an anxious wait for mortgage holders and property investors, with many ‘experts’ predicting interest rates to be increased further, as house prices begin to drop. But what is the basis of these predications? How can the RBA genuinely justify increasing the cash rate further?

The RBA have used increases in the cash rate as a measure to attempt to control inflation. However, their efforts thus far have been modest, at best. An initial 0.25% increase followed by 3 consecutive months of 0.5% increases has illustrated a lack of strategy and leadership. If the RBA were genuinely concerned about inflation, a more decisive strategy would have been to implement an initial 1% increase, followed by a further 1% increase – then measure the tangible impact.

In Australia, the challenge we face is that we are the only country in the G20 to report on inflation quarterly, not monthly (which is set to change from October onwards). The actual effect of interest rate changes tends to be lagging, not immediate.

Our petrol prices continue to fluctuate effecting our cost of living. Our car industry has retracted by 13.7% in year-on-year sales. Globally, inflation is dropping in the USA, but rising in the UK, as the Ukraine war ravages on.  

So, with inflation statistics only scheduled to be released in October, how can the RBA justify another rate increase in September, with no real supporting data?  

Here’s some other data from the last week, that would indicate that interest rate hikes are starting to take effect, which will drive inflation down:

1. The weekly ANZ-Roy Morgan consumer confidence index fell by 0.7% to 85 points (long-run average since 1990 is 112.2 points).
2. Consumer views on whether it’s a ‘good time to buy a major household item’ dropped by 5.5% last week to a 28½-month low of -28.2 points.
3. The number of dwelling approvals fell by 17.2% in July to 13,595 units. It was the second biggest monthly percentage decline since December 2017. Approvals are down 25.9% on a year ago — ouch!
4. Approvals for private sector houses rose by 0.7% in July, but approvals for private sector apartments (i.e., dwellings excluding houses) fell by 43.5% to 3,439 units – the lowest level since January 2012!
5. The Internet Vacancy Index (IVI) from the National Skills Commission fell by 3.8% in July (or by 11,249 available positions) to 288,465 available positions. Recruitment activity decreased for the first time in seven months, with the number of vacancies down from a 14-year high of 299,714 positions in June.
6. Earlier this month, Core Logic reported that house prices were “falling at their fastest rate since the early 1980s recession, and rising interest rates could see 30% wiped off values”.

At Intuitive Finance, we believe a far better strategy, at this point, would be to hold, wait and see. Hold on any further interest rate increases. Wait until tangible inflationary data is available. See where we are at, and if any further corrections are required to curb inflation – make it strong and decisive, not another slap with a wet lettuce.

We see and hear it, time and time again. ‘Experts’ making audacious predictions, only for the opposite to materialise. At present the spotlight is on the property market, with doomsday pundits currently predicting falls of 14-18% or more. These same pundits inaccurately predicted that the housing market would drop as much as 40% as we entered our first lockdown. However, during the past 2 years we have seen the majority of properties increase in value by between by 15-50%, depending on your location.

Our tip: Take the ‘doomsayers’ with a grain of salt. Seek out real data and information from an independent finance broker, like Intuitive Finance, so that you can make informed decisions.

Want to ensure you’re getting the best advice for your situation? Our experts have years of experience working with first home buyers to help them navigate the property market with ease. Contact us today for an obligation free consultation.