RBA holds rates at 4.35% at September meeting

The Reserve Bank of Australia (RBA) has left the official cash rate unchanged at 4.35% for the seventh time in a row at its September Board meeting, which concluded this afternoon.

The decision means that interest rates will, in all likelihood, remain at their highest level in almost 13 years for at least another six weeks until the Board meets again for its next meeting on November 4.

In a statement released following today's meeting, the RBA Board noted that while a long way from its peak, inflation is still hovering above the central bank's target band.

"Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. But inflation is still some way above the midpoint of the 2-3% target range.

"Headline inflation declined in July, as measured by the monthly CPI indicator. Headline inflation is expected to fall further temporarily, as a result of federal and state cost of living relief. However, our current forecasts do not see inflation returning sustainably to target until 2026."

On the inflation front, the Board will have more data to digest tomorrow when the monthly consumer price index for August is released by the Australian Bureau of Statistics (ABS).

Last month the ABS revealed that the Consumer Price Index (CPI) had risen 3.5% in the year to July, but there is an expectation that the figure will come in lower for the month of August.

The Commonwealth Bank, for instance, is forecasting that consumer prices will have increased by 2.7% over the 12 months to August which - if correct - will be the first time that CPI has dropped below the 3% mark in three years.

When will the RBA start cutting rates?

Last week the Federal Reserve joined the growing list of central banks - including the likes of the Bank of England and the European Central Bank - to have lowered interest rates in recent months.

The 50-basis point move from the US central bank was its first cut in four years and a firm indicator that it believes that inflation in the country is heading back towards a more sustainable level.

So when could the Reserve Bank of Australia join the list?

In a survey of 34 economists and experts conducted by comparison website Finder in the lead up to today's rate meeting, just five respondents reported that they expected to see an interest rate reduction in Australia before the year is out.

Interestingly, most anticipate that the Reserve Bank will make its first cut in either February (44%), March (9%) or April (15%) next year.

One of the respondents currently pencilling in February as the most likely month for the RBA to make a move is Shane Oliver, chief economist at AMP.

"Short of substantially higher unemployment, lower underlying inflation or a financial shock the RBA is likely to remain on hold in the next few months as it still sees too much excess demand and inflation. But easing demand, employment and inflation are likely to drive rate cuts from February," he says.

Why are lenders already reducing mortgage rates?

While the Reserve Bank has been holding steady, lenders themselves haven't been sitting on their hands - particularly when it comes to fixed home loan rates.

Rachel Wastell, personal finance expert at Mozo, says that the comparison website has recorded more than 100 fixed rate cuts from so far in September, including from lenders such as AMP, Bendigo Bank, ING and Macquarie.

"Lenders seem to be positioning themselves for what could be a turning point in the rate cycle, cutting longer terms to stay competitive, setting rates based on what they anticipate needing to recoup over those terms.

"Half of all the cuts that have occurred this month were for two- and three-year terms, and when you look at the cuts on longer term fixed rates, the longer the term, the deeper the cuts. 72% of the cuts to three-year terms, 88% of cuts to four-year terms and 83% of cuts to five-year terms were over 20 basis points."

Asked whether she thinks borrowers have an opportunity to negotiate a better deal or refinance at present, Wastell says that's absolutely the case. In fact, she notes that there are still a handful of variable rates starting with a '5' on the market that could be worth looking at.

"Alongside cuts to fixed rates we are also seeing some lenders cutting variable rates, so if you haven't checked your rate recently now's the time to call your lender and see how your current rate stacks up against what they're offering new customers.

"It could be a great opportunity to ask for a better deal - and as they say - if you don't ask, you don't get! If your lender won't budge, switching could be a smart move if you can afford to refinance and meet serviceability requirements."

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