New year, same home loan interest rates: Reserve Banks holds the cash rate at 4.35%

RBA governor Michele Bullock interest rate announcement

In its first decision of 2024, the Reserve Bank of Australia (RBA) opted to keep the official cash rate on hold at 4.35% for February. 

After two days of deliberations (the new format of RBA monetary policy meetings), RBA governor Michele Bullock announced that the high interest rate environment is successfully working to curb inflation.

“Inflation continued to ease in the December quarter,” explained Bullock in a post-meeting statement.

“Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy.”

Most property experts and economists expected a rate hold today. The last RBA rate hike was in November 2023, on the heels of a worrying spike in inflation

The holiday spending season, however, proved slower than expected. With headline inflation now slipping to 4.1%, the RBA wants to wait and see what it’ll do before hitting the cash rate again. 

“While recent data indicate that inflation is easing, it remains high,” says Bullock. “The Board expects that it will be some time yet before inflation is sustainably in the target range. 

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.”

Indeed, this may be the last rate hike we see for a long while, so 4.35% might be how high interest rates will go in 2024. 

If inflation continues to slow its pace of growth (a process called “disinflation”), then it’s on track to hit the top of the RBA’s target band of 2% to 3%. When that happens, the RBA will make the first rate cut since November 2020.

For home loans, a rate hold is good news. Lenders have been making individual adjustments in the last few months to their top interest rates, but no added pressure from the RBA means no massive sweep of rate hikes – and no extra dollars on mortgage repayments

A rate hold also gives buyers and borrowers an opportunity to compare home loans with some certainty. After all, if your home loan interest rate isn’t going to change right after you apply, you can genuinely compare the long-term value between two mortgages. 

However, Marshall warns against waiting for rates to come down and make home buying more affordable. The housing market is still projected to stay strong, with an anticipated 5% growth in home values in 2024 from CoreLogic. 

Essentially? If you can get in now, get in now. If you’re already in, a rate cut is just a glimmer of hope on the horizon.

When will home loan interest rates decrease?

RBA governor Michele Bullock discussing monetary policy

Home loan interest rates will decrease when a couple things happen:

  • Inflation drops to 3%.
  • Household spending softens.
  • Unemployment rises, usually at least over 4%.

The absolute guarantee of a rate cut is a recession. At the moment, a recession isn’t looking likely – phew – but this means we’ll have to wait until inflation drops into the RBA’s target band. 

Once that happens, the RBA will likely slash the cash rate 25 basis points at a time until it hits ‘neutral’ territory again, typically between 2.5% and 3.5%. 

Economic experts at the Big Four Australian Banks (Westpac, CommBank, NAB, and ANZ) suspect inflation will reach the RBA’s desired target in the next six to eight months. The earliest cash rate cut forecast takes place in September 2024.

Rate changes operate with a delay, so borrowers can likely expect their home loan payments to start decreasing around six to eight weeks after the first rate cut. That is, if your lender passes the savings along at all. (They don’t have to). 

“The RBA will be reluctant to signal any cuts ahead of time. So perhaps a month before they make the first cut, they may start to soften their language and indicate cuts are coming,” explains Peter Marshall.

However, Marshall reckons the RBA will need to decrease interest rates sooner rather than later if they want to achieve a ‘soft landing’, i.e. kill inflation without killing the economy. 

“I think they’ll start alleviating the interest rate pain sooner in the cycle than later, rather than holding out until the last minute. Cutting at the eleventh hour could be dangerous.”

Will banks change home loan rates after the February RBA decision?

A rate hold doesn’t mean home loan lenders stay idle. In fact, plenty of rate changes are still getting tracked in the Mozo home loan database. Macquarie even slashed its variable rates just last week. 

Variable interest rate home loans aren’t likely to truly drop for a while – at least until the RBA starts cutting rates –  but fixed rate home loans have already started inching down. This is because fixed rate home loans are predictive. Lenders price rates based on what they think will happen during the fixed term. Fixed rates coming down mean lenders expect rate cuts later this year.

But hold on: unless you spot a good deal, it may not be worth it to fix right now. They still have farther to fall. 

We’ll track home loan changes as they come in. In the meantime, you can compare low rate home loans in the table below.

Read last month's Reserve Bank interest rates update.

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