n borrowers may have to wait longer for mortgage interest relief under major Reserve Bank changes – even though inflation has fallen to a two-year low.
The official monthly consumer price index reading for January showed headline inflation growing at an annual pace of 3.4 per cent – the lowest level since late 2021.
The monthly indicator showed inflation only marginally above the Reserve Bank’s 2 to 3 per cent target.
Meat and seafood prices fell by 2 per cent over the year but bread and cereal prices rose by 7.4 per cent, the n Bureau of Statistics figures released on Wednesday showed.
Even if overall inflation moderates faster than the RBA expects, borrowers may have to wait longer for prospective rate cuts and less punishing monthly mortgage repayments.
n borrowers may have to wait longer for rate cuts under major Reserve Bank changes – even though inflation has fallen to a two-year low (pictured is a Woolworths shopper in Sydney)
That’s because the Reserve Bank will be meeting eight times in 2024 – instead of the previous 11 – under Treasurer Jim Chalmers’s major changes.
With longer gaps between meetings, AMP economists My Bui and Diana Mousina said the Reserve Bank would be worried if consumers started expecting rate cuts soon.
‘The RBA will probably maintain its mild hiking bias, out of concern that any talk of interest rate cuts would lead to a lift in inflation expectations and a renewed lift in inflation,’ they said on Wednesday.
Like the US Federal Reserve, the RBA will also be holding two-day meetings, eight times a year.
But unlike the United States, ‘s more comprehensive inflation data is released quarterly rather than monthly.
The March quarter inflation data isn’t due out until April 24, with the RBA unlikely to ease cut rates in May, even if the number is well below the December quarter’s annual pace of 4.1 per cent.
For evidence of inflation consistently easing, the Reserve Bank would probably wait until the August meeting, following the July 31 release of June quarter inflation data.
But its those numbers aren’t low enough, borrowers might have to wait until the November meeting, following the October 30 release of September quarter inflation data.
The Reserve Bank isn’t expecting inflation to fall within its 2 to 3 per cent target band until December 2025 but it could cut rates sooner to stop a severe economic slowdown.
With an election due next year, Dr Chalmers would also become the first treasurer to give up his power to veto RBA decisions.
This mechanism has never been used since the Reserve Bank was legislated in 1959.
The Treasury Laws Amendment (Reserve Bank Reforms) Bill 2023 was introduced to Parliament in November last year.
Even if inflation moderates faster, rate cuts could take longer with Treasurer Jim Chalmers changing the Reserve Bank’s schedule so it meets eight times a year instead of 11
This will create a specialist monetary policy board with six external members to decide interest rates, to replace the existing arrangement of the RBA board deciding the cash rate.
The Senate Economics Legislation Committee is due to report on March 21.
The RBA last raised rates in November, taking the cash rate to a 12-year high of 4.35 per cent.
This was the 13th rate hike in 18 months, marking the most severe pace of monetary policy tightening since 1989.