Welcome to the first Dominion Finance newsletter for 2024. We are back again to provide you with some views and thoughts regarding home loans; government initiatives for homeowners and investors; and general economic outlook.
Our newsletter coincides with the Reserve Bank meetings when they make their decision on the cash rate. There will be only eight newsletters this year as the RBA has decided to reduce its monthly meetings to eight per year.
Interest Rate Cuts: A Matter of When, Not If
The RBA has shifted its focus from raising interest rates to battle inflation, towards a more cautious wait-and-see approach. While further rate hikes remain a possibility, recent data suggests a potential pivot towards cuts in the latter half of 2024, though recently the economic experts have forecasted cuts as early as May 2024.
The likelihood of a cut to the cash rate is primarily due to:
- Moderating inflation: The January 2024 CPI data showed a lower-than-expected rise, indicating a potential that we are at the peak in the inflation rate.
- Economic slowdown: Concerns are growing about a potential economic slowdown, prompting the RBA to consider easing monetary policy. The RBA have a balancing act to reduce inflation, while keeping the economy out of recession.
However, it’s crucial to remember that economic forecasts are inherently uncertain. The RBA’s decision will depend on various factors, including:
- Global economic conditions: The ongoing conflicts in the world and their impact on global energy, food, and consumable prices remain key concerns.
- Domestic wage growth: Higher wages could fuel inflation, making rate cuts less likely.
RBA Meeting Schedule: Fewer Meetings, More Impactful Decisions
The RBA’s transition to meeting eight times per year instead of twelve, has significant implications for borrowers and investors:
- Less frequent rate adjustments: This could lead to longer periods of stable interest rates, offering some predictability for budgeting.
- More significant rate movements: Fewer meetings might translate to larger rate adjustments when changes are deemed necessary.
The money that people saved through Covid, seems to have washed through the economy now, with the cost of living increases, overseas travel in 2023, and purchasing of lots of non-essential items. There is hope that 2024 will see less turbulence of the past few years and perhaps a return to a more stable economy.
As always, we live in interesting times. Until next time.
Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice. Please consult with a qualified professional before making any financial decisions.
At its meeting yesterday, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.
Inflation continued to ease in the December quarter. Despite this progress, inflation remains high at 4.1 per cent. Goods price inflation was lower than the RBA’s November forecasts. It has continued to ease, reflecting the resolution of earlier global supply chain disruptions and a moderation in domestic demand for goods. Services price inflation, however, declined at a more gradual pace in line with the RBA’s earlier forecasts and remains high. This is consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs.
The information provided in this newsletter is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this newsletter, you should consider its appropriateness in relation to your personal situation.