RBA holds rates at last meeting of 2023

The Reserve Bank has followed up last month's 25 basis point increase with a pause, leaving the cash rate steady at 4.35%.

Homeowners with a mortgage have been spared a repayment rise over the Christmas period after the Reserve Bank Board opted to keep the official cash rate frozen at 4.35% at its December monetary policy meeting this afternoon.

Last week the latest monthly inflation update from the Australia Bureau of Statistics revealed that in the 12 months to October the Consumer Price Index rose by 4.9% - down from 5.6% in 12 months to September.

While still well above the Reserve Banks' target band of 2-3%, the most recent inflation figures are likely to have eased some of the concerns around the stickiness of inflation. At least, for now.

"The limited information received on the domestic economy since the November meeting has been broadly in line with expectations," says Reserve Bank governor, Michele Bullock.

"The monthly CPI indicator for October suggested that inflation is continuing to moderate, driven by the goods sector; the inflation update did not, however, provide much more information on services inflation. Overall, measures of inflation expectations remain consistent with the inflation target."

The year that was

The year may have ended with a rate hold, but 2023 has certainly been another busy year on the interest rate front.

Building on its 2022 rate hikes, the Reserve Bank lifted rates in five of its 11 meetings this year which ensured the cash rate jumped from 3.10% to 4.35% - the highest it's been in 12 years.

These increases have come as welcome news for savers earning interest on their deposit accounts, but the opposite is true for borrowers. Since January, a homeowner with an average mortgage rate on a $500,000 loan will have seen their repayments jump by over $300 a month.

Unsurprisingly, these higher repayments have only added to the financial burden of many borrowers.

In the three months to January, Roy Morgan estimated that around 1.2 million mortgage holders (24.9% of the total) were at risk of mortgage stress, but that figure which has since risen to 1.5 million (30.1% of the total) in the three months to October.

Will interest rates rise or fall in 2024?

The Reserve Bank Board will now adjourn for a two-month summer break before reconvening in February, but cash rate forecasts for 2024 have already begun rolling in.

In a report released last week, the Organisation for Economic Co-operation and Development projected that the RBA would hold the cash rate at 4.35% for the first half of the year before cutting rates by 75bp between the third quarter of 2024 and end of 2025.

The Commonwealth Bank is forecasting a similar time frame in which interest rates are held steady until the Reserve Bank begins a series of cuts starting from September 2024.

Meanwhile, fellow major bank NAB is also expecting that the cash rate will begin to fall towards the end of next year, but not before one last rate hike.

"We expect one more hike in February. There's no guarantee that it's going to happen, but we think it's more likely than not. Then we'll have cuts from November next year," says Alan Oster, NAB Group's chief economist, in a recent video.

New RBA meeting format 2024

One thing we can expect with certainty in 2024 is for a number of planned changes to Reserve Bank Board monetary policy decision meetings to kick in.

Going forward, the Board will meet eight times each year instead of the current 11 times and meetings will also be held over two days, starting on Monday before the rate decision is handed down on Tuesday at the usual 2:30pm.

Governor Michele Bullock will also start holding media conferences an hour after the decision is announced, starting at 3:30pm.

The changes, which were announced earlier in the year as part of wider reform measures, are designed to give the Reserve Bank Board more time between meetings to take on relevant data and advice, and to increase the banks' engagement with the wider public.

The first meeting under the new structure will be held on February 5 and 6, but the full 2024 calendar is available on the Reserve Bank website.

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