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Stephen Capello and 1494 2AY, September 2023 RBA recap

Our CEO caught up with Kylie and Matt of 1494 2AY to discuss the Reserve Bank of Australia’s decision to hold interest rates for a third consecutive month.

Kylie opens the chat by commenting that mortgage holders are breathing a sigh of relief after the RBA’s decision to leave the cash  ate unchanged at 4.1 per cent.

Stephen agrees and says it was probably one of the more widely expected decisions in what was Governor Phillip Lowe’s final meeting before handing over the reins to Michelle Bullock.

Despite the pause, Stephen says the cash rate is still highest since April 2012.

Stating we saw inflation cooling, with 4.9 per cent in July which is lower than expectations but still above that magical target range of 2 to 3 per cent.

Matt comments that the RBA must be happy with July inflation being down to 4.9 per cent because it was 8.4 per cent in December 2022.

But he asked if it would have come at any cost at all. Which Stephen replied, “it certainly has.” He says inflation has been pretty high at around the 5 per cent range or even above since February last year. Stating that this weighs heavily on household income, which adds to that already high cost of living.

He goes on to say if you dig just a little bit deeper some of those inflationary figures might be at five per cent but there’s pockets of core household items – fuel, housing and even energy alone increasing just shy of 16 per cent over the past 12 months.

With pressure on households evident. He also says we need to remember we’ve the 12 times the RBA has increased rates. Meaning those on a half a million-dollar mortgage have had to find an extra $15,000 in mortgage repayments. And that figure is after tax. He comments we’re also seeing on top of those two items unemployment rates rising slightly to 3.7 per cent in July.

Kylie comments that the unemployment figures are a bit of a worry, but commented on data showing that the property market is still strong, despite interest rates still being high.

Stephen said the figures surprise him as well, commenting the property market is still probably in recovery mode following the significant declines after covid.

He says the indication that inflation is cooling also gives hope to buyers that interest rates may have peaked so this confidence in borrowing is enticing more borrowers into the market while supply is down.

With the latest data indicating the available / advertised supply of housing is down at least 15 per cent compared to this time last year. So that is going to push property prices up. But it also pushes rent up for example we’ve had the national rent increase for 36 straight months that’s definitely adding to household pain as well.

Matt asks Stephen in light of inflation decreasing and unemployment increasing what his forecast is for interest rates in October.

To which Stephen responds, if he had a crystal ball he would indicate a bit of economic uncertainty. He did comment that we are seeing the impact of the recent rate rises starting to flow through – which he described as a positive.

He believes the expectations are that there will be another rate pause next month, with many economists saying we need an extended period at this level to bring some stability back into the economy.