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Stephen Capello and 1494 2AY, June 2024 RBA recap

Our CEO caught up with Kylie and Matt of 1494 2AY to discuss the Reserve Bank of Australia’s (RBA) interest rate decision.

Kylie opens the chat by commenting that it’s good news from the RBA that rates were left on hold but probably doesn’t mean that they’ll stay there, with a rise hinted.

Stephen agrees, commenting a rise was hinted. He then goes on to say it was the seventh month in a row that rates were kept steady, and it will remain this way for the next few weeks until the RBA meets again in August. He also says the decision was widely predicted, and the unemployment rate picked up slightly. “Some would argue the decisions the RBA have been making are working and the economy certainly dampening as intended”.

Matt comments that it seems a bit worrying, the RBA board indicated employment would need to rise further to make sure inflation comes down.

Stephen agrees it’s worrying. He goes on to state any indication that employment needs to rise is going to be a concern to households as they continue to struggle with cost-of-living pressures, and that they may be unemployed at the same time. The RBA indicated that wage growth has begun to peak, meaning households are also seeing a dampening of wage growth. Linking this back to inflation, it may have fallen since the peak in 2022, but we’re seeing unemployment rise and wage growth slowing. The RBA indicates there’s still some way to go for inflation (currently at 3.6%) to get it sustainably in the target range. This indicates they’ve still got concerns and a fair way to go.

Kylie asks if there’s any certainty leading into the coming periods that the RBA is confident about.

Stephen comments “not really”. While a key point was that they don’t expect Australia to go into a recession, they’re certainly not ruling anything out, including a rate rise. The RBA also pointed out the challenge they have is, that as a country, we only receive comprehensive inflation dated quarterly – the next of which is six weeks away, making it difficult to get a read on economic momentum.

Matt suggests that despite the RBA saying it’s difficult to read that momentum the major banks are suggesting the rate cuts may not happen until early 2025.

Stephen says the major banks tend not to get their forecasting right, with ANZ forecasting expected cuts in early 2025. Whereas the other major banks are still suggesting cuts towards the end of 2024. This can be seen in some of their term deposit rates coming through for longer-term durations.

Stephen finishes by saying people with mortgages are expected to endure higher rates for longer and the financial pain that comes with this. Those with savings can continue to enjoy higher returns for longer which is good news for the majority of Australians that have savings.

Listen to the full interview here.