"After the inexplicable commentary in May from the Reserve Bank about the high potential for rates to have to go higher, we saw them follow up the first cut in August to the Official Cash Rate with a further 50 basis points (0.5%) on the 9th of October.
This decision was strongly supported when last Wednesday the inflation numbers came in for the September quarter and we had the headline number sitting within the Reserve Banks target range for the first time since March 2021 at 2.2% and significantly lower than previous quarters.
This happened despite half of that quarter’s inflation number being caused by the largest increase in council rates since 1990 and all but guarantees at this stage that we should see at least the same sized cut at the last cash rate review of the year on November the 27th.
This should provide some respite for retailers and businesses in general heading into the festive season although a key date to watch out for is the 6th of November which is when we get the next unemployment numbers.
If this number jumps aggressively from the 4.6% we saw in the June quarter, then we may even see the Reserve Bank incentivised to cut 75 basis points at the November review.
What has transpired is significant drops in interest rates with attractive 1 year pricing now available across several of the banks and also significant cuts that have been made to the 12-month pricing with these having fallen from circa 6.85% to around the 6.25-6.35% region. There is very little reason to go for any rate terms longer than this with the general expectation that the cash rate will continue to be across 2025.
Another point worth noting is that with the cash rate having now been cut we are seeing the test or assessment rates across banks also drop at roughly the same rate. Where prior to the August cut, banks had been testing all existing and proposed further residential debt at rates close to 9%, these now sit at or close to 8% with a strong chance of a further reduction to circa 7.5% by early December. This is increasing a borrower’s capacity to access lending quickly and should result in more participation in the housing market from those previously locked out and also the ability for those who could previously purchase to pay a higher amount as well."
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