Yahoo Finance $275 interest rate cut sign for millions of Aussies: 'Large sums of money'
The Reserve Bank of Australia has warned not to expect mortgage relief in 2024, however there could be some hope.
There could be a very slim chance that the Reserve Bank of Australia (RBA) will still cut interest rates by the end of this year. While Governor Michele Bullock effectively ruled out providing any mortgage relief in 2024, experts are looking elsewhere to see if there's still hope.
Some are pointing towards the futures market as the biggest indicator that homeowners could still get a rate cut before Christmas. Finance expert Ben Nash told Yahoo Finance that people place a lot of importance on that market because it's "driven by people investing significant amounts of money on a global scale".
"They're putting the money where the mouth is," he said.
"It's not just commentary. It's not just the talking head saying something. It's people investing and trading large, large sums of money."
RELATED
FIFO tradie exposes ‘golden handcuffs’ trend trapping Aussies
ATO warning over tax deduction claimed by millions: ‘Common myth’
Why did interest rates remain on hold in August?
The central bank kept interest rates on hold at 4.35 per cent on Tuesday and fired a warning shot to those thinking a rate cut was on the horizon.
"A rate cut is not on the agenda in the near term," Governor Bullock declared at the press conference.
Do you have a story? Email stew.perrie@yahooinc.com
The RBA's statement about its August rates decision was described as "hawkish" compared to the one made in June, because it really rammed home the idea that inflation still isn't moving in the right direction, at least enough to warrant mortgage relief.
While many will take the RBA at its word that a drop in the official cash rate is out of the question this year, some believe that's not entirely true. Nash told Yahoo Finance the RBA doesn't have to show their full hand every time they front the media.
"They're doing what they need to do, but they're not going to always be 100 per cent transparent," he said.
"It's why over the last little while that inflation has been higher, the RBA's commentary is taking a really tough stand saying, 'We will increase further if we have to ... We're watching the data closely'.
"That keeps everyone on edge. It keeps everyone behaving cautiously, whereas if they say, 'Well, we're going to kick back and we'll probably cut it next, then people's behaviours change."
What role does the futures market play in all this?
The Australian Stock Exchange (ASX) has an indicator that calculates a percentage probability of an RBA interest rate change based on the market-determined prices in the ASX 30 Day Interbank Cash Rate Futures.
Before Tuesday's RBA meeting, the market was predicting a 0.25 drop in the cash rate in November, then another in February and another in April.
If that came true, Aussies with a $600,000 mortgage would have $275 extra per month to play with.
Following the August meeting, the indicator reckons there's still a 50 per cent chance of a rate cut this year.
"I think they are generally probably a better indicator than the RBA commentary as to what will happen with rates," Nash told Yahoo Finance.
"Although, they do tend to fluctuate and move around fairly quickly.
"It wasn't that long ago that they were anticipating a rate hike and now they're they're talking about cuts."
He said large bonds are traded on periodic terms and their interest rate is usually tied to the RBA cash rate.
So, people are looking at six to 12-month bond terms, which are predicting a slow drop in interest, as the biggest indicator that the central bank could cut rates before the end of 2024.
What is the rest of the world doing with interest rates?
The Bank of Canada, Bank of England, European Central Bank, and Sweden's Riksbank have all cut interest rates due to inflation.
New Zealand and the US are expected to follow suit soon.
Bullock acknowledged that other nations have started cutting rates, but said we are in different economic situations.
"The point about floating exchange rates is you do have a little bit of flexibility,” she said.
"You, you still have to consider what's going on in other economies. But you can focus a little bit on your domestic economy.
"I would resist peer pressure."
Get the latest Yahoo Finance news - follow us on Facebook, LinkedIn and Instagram.
