Was rate hold a betrayal of hard-pressed households?
Michele Bullock, governor of the Reserve Bank of Australia (RBA), copped a grilling on numerous fronts following the surprise decision from the Monetary Policy Board to hold the cash rate at 3.85% on Tuesday.
Households and mortgage holders were eager to see at least a 25-basis-point interest rate cut, if not a chunkier 50-basis-point cut, in order to reduce the strain on monthly repayments.
In a blow to their wishes, the board opted to hold, following two cuts earlier this year. Board members pointed to global stability and lingering inflationary fears to justify the pause.
That is despite headline inflation reaching the target range midpoint in the March quarter, with recent monthly consumer pricing data also being broadly in line with forecasts.
Bullock stood by the board’s decision in a press conference following the surprise hold.
“I know it’s been tough,” she said when pressed by a Seven journalist on whether the RBA had “betrayed” hard-pressed households.
“I think betrayal would be to let inflation get out of hand,” Bullock said. She contended that it is more important to “try and meet our mandates of keeping inflation low and keeping unemployment as low as we can”.
But these comments are likely to be little comfort for households struggling to make their monthly repayments. “My message to them,” said Bullock, “is that provided we are still on top of inflation, which is what we intend to be, and we’re getting confirmation that we are, then yes there is an easing cycle coming.”
While the RBA will reconvene in just over a month (12 August), even then a cash rate cut is not set in stone.
“We just want to confirm with a full quarterly CPI, that we're still on track for delivering on inflation,” said Bullock. Her overall tone was one of caution again cutting too soon and too sharply, for risk of spiking inflation higher once again.
Broking industry reacts
“The RBA may have held steady today, but borrower expectations have not,” Mark Haron (pictured, far right), executive director at mortgage aggregator Connective, told MPA following the surprise announcement.
Borrowers will remain active in the midst of softening inflation and ongoing cost-of-living pressures, “and many will continue reviewing their loans in anticipation of future rate cuts”, Haron said. “This environment keeps competitive pricing and lender response times in sharp focus, which naturally positions brokers to guide their clients in navigating what this means for them.”
Anthony Waldron (pictured, middle right), chief executive of Mortgage Choice, acknowledged that borrowers and hopeful buyers “will be disappointed” by the RBA decision. However, with four more board meetings to come in 2025, “today’s decision doesn’t mean further cuts are off the table”.
“If the June quarter Consumer Price Index released later this month shows that inflation remains within the RBA’s target range, we could see the RBA deliver a cut at its August meeting. I encourage borrowers and buyers to take this time to chat to their mortgage broker to see how they can put their best foot forward ahead of future rate cuts,” Waldron said.
“The Reserve Bank’s decision to stick with the status quo and not lower the official cash rate may have come as a shock given that most economists had predicted a cut of 25 basis points,” said Anja Pannek (pictured, far left), chief executive of the Mortgage and Finance Association of Australia (MFAA).
“Following the RBA decisions to lower the rate in February and May, and recent data showing inflation trending downwards, borrowers were hoping for another cut in July to further ease the pressure on their mortgage payment.
“However, there’s still an opportunity for mortgage brokers to talk to their clients about repricing, refinancing or other options such as consolidating debt to put them in a better financial position.”
Peter White (pictured, middle left), managing director of the Finance Broker Association of Australia (FBAA), said: “Interest rates, while extremely important, are not the only factor to consider and finance and mortgage brokers are obligated to act in the best interests of the customer, unlike banks which are unable to do this.
“It is vital for brokers to be proactive at this time, to reach out to clients and discuss their needs. Remind them that your focus is their best interests and provide solutions that consider their individual circumstances. In the current market the service provided by brokers is more important than ever.”
White also had a few words of caution for brokers and their clients.
“We must also be aware that advertising from banks doesn’t always tell the full story, and is designed to capture new customers, sometimes at the expense of existing customers," he said.
“We must work with customers to negotiate better deals with existing lenders when appropriate, or offer them alternatives if their current lender won’t assist them.”
RBA grilled on lack of transparency
There was plenty more grilling to go around on Tuesday. Bullock was also pressed on the lack of transparency surrounding the Monetary Policy Board’s voting record.
Per recommendations outlined in the Review of the Reserve Bank of Australia, the RBA has now committed to publishing a voting record, showing the number of board members who voted in favour for and against a rate decision.
Consensus on Tuesday was 6-3 for and against a rate hold.
This decision to publish a record of votes finally brings the RBA in line with its global counterparts in the UK and US. However, unlike these counterparts, the voting intentions of the nine individual Board members will remain shrouded in secrecy.
“They are unattributed votes, so I can’t tell you who voted what way,” said Bullock on the matter, adding that there was “really good active debate” before coming to the 6-3 consensus.
Bullock contended that an attributed voting record would “stifle fee and frank debate”, highlighting the potential for industry lobbying should the Board’s voting history go on public record.
