{"id":187764,"date":"2025-01-29T18:58:43","date_gmt":"2025-01-29T07:58:43","guid":{"rendered":"https:\/\/propertyupdate.com.au\/?p=187764"},"modified":"2025-01-30T20:19:29","modified_gmt":"2025-01-30T09:19:29","slug":"inflation-data-pushes-rate-cut-to-top-of-to-do-list-for-rba-in-february","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/inflation-data-pushes-rate-cut-to-top-of-to-do-list-for-rba-in-february\/","title":{"rendered":"Inflation data pushes rate cut to top of to-do list for RBA in February"},"content":{"rendered":"

While today\u2019s latest inflation data (CPI) could be enough for the RBA to cut the cash rate next month, the big four banks are still split on the timing.<\/p>\n

The ABS December quarter CPI data recorded headline inflation at an annual rate of 2.4%, down from 2.8% in the previous quarter, however, this was in part driven by the state and federal governments\u2019 temporary electricity subsidies.<\/p>\n

\"CPI<\/a><\/p>\n

Importantly, trimmed mean inflation, which is the RBA\u2019s preferred measure, as it reduces the effect of irregular or temporary price changes, dropped from an annual rate of 3.6% in the September quarter to 3.2% \u2013 just above the RBA\u2019s target band.<\/p>\n

Trimmed mean inflation is now at the lowest annual rate since December 2021, and well below the recent peak of 6.8% at the end of 2022, according to the ABS.<\/p>\n

Headline inflation came in lower than expected with an increase in the December quarter of 2024 of just 0.2%.<\/p>\n

Following these better inflation result the money market is now pricing in an 92% probability of an interest rate cut when the Board next meets on the 18th<\/sup> of February.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
ABS Quarterly CPI - annual movement<\/strong><\/td>\n<\/tr>\n
Quarter<\/strong><\/td>\nQuarterly CPI<\/strong><\/td>\nAnnual Trimmed mean<\/strong><\/td>\n<\/tr>\n
Dec-22 <\/strong>- recent peak<\/td>\n7.80%<\/td>\n6.80%<\/td>\n<\/tr>\n
Mar-23<\/strong><\/td>\n7.00%<\/td>\n6.50%<\/td>\n<\/tr>\n
Jun-23<\/strong><\/td>\n6.00%<\/td>\n5.80%<\/td>\n<\/tr>\n
Sep-23<\/strong><\/td>\n5.40%<\/td>\n5.10%<\/td>\n<\/tr>\n
Dec-23<\/strong><\/td>\n4.10%<\/td>\n4.20%<\/td>\n<\/tr>\n
Mar-24<\/strong><\/td>\n3.60%<\/td>\n4.00%<\/td>\n<\/tr>\n
Jun-24<\/strong><\/td>\n3.80%<\/td>\n4.00%<\/td>\n<\/tr>\n
Sep-24<\/strong><\/td>\n2.80%<\/td>\n3.60%<\/td>\n<\/tr>\n
Dec-24<\/strong><\/td>\n2.40%<\/td>\n3.20%<\/td>\n<\/tr>\n
Source: ABS Consumer Price Index, Australia, Quarterly CPI and Monthly CPI indicator, annual change (%).<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

\"Contributors<\/a><\/h2>\n

Westpac and NAB bring forward timing of first cash rate cut<\/span><\/h2>\n

All four big bank economic teams now expect the first cash rate cut will come at the next RBA Board meeting, which finishes on 18 February.<\/p>\n

The number of cuts to be delivered by the RBA is still hotly contested.<\/p>\n

ANZ expects the RBA will make just two cash rate cuts in the cycle, while NAB is predicting a total of five. However, NAB has brought forward the timing of these forecasted cuts, with the last cut expected to land in the first quarter of next year (previously it was Q2 2026).<\/p>\n\n\n\n\n\n\n\n\n
Current big four bank cash rate forecasts <\/strong><\/td>\n<\/tr>\n
Bank<\/strong><\/td>\nNo. cuts in cycle<\/strong><\/td>\n<\/tr>\n
CBA<\/strong><\/td>\n4 - starting Feb<\/td>\n<\/tr>\n
Westpac<\/strong><\/td>\n4 - starting Feb<\/td>\n<\/tr>\n
NAB<\/strong><\/td>\n5 - starting Feb<\/td>\n<\/tr>\n
ANZ<\/strong><\/td>\n2 - starting Feb<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

What would a rate cut look like for borrowers?<\/span><\/h2>\n

An owner-occupier with a $600,000 debt today, and 25 years remaining on their loan could see their monthly repayments drop by $92 on the back of just one 0.25 percentage point RBA cut, assuming the banks pass it on in full to existing variable rate borrowers.<\/p>\n

However, the RBA is not expected to stop at just one rate cut.<\/p>\n

While there is much conjecture around the number of cuts we\u2019ll see, a total of four cuts in 2025 could see the same borrower\u2019s repayments drop by a total of $359 per month by the end of the year.<\/p>\n\n\n\n\n\n\n\n\n\n\n
Potential impact of RBA cash rate cuts on minimum monthly repayments<\/strong><\/td>\n<\/tr>\n
<\/td>\nCumulative drop in monthly repayments<\/strong><\/td>\n<\/tr>\n
Number of cuts<\/strong><\/td>\nRate<\/strong><\/td>\n$600k<\/strong><\/td>\n$750k<\/strong><\/td>\n$1m<\/strong><\/td>\n<\/tr>\n
1 rate cut<\/td>\n6.08%<\/td>\n-$92<\/td>\n-$115<\/td>\n-$154<\/td>\n<\/tr>\n
2 rate cuts<\/td>\n5.83%<\/td>\n-$183<\/td>\n-$229<\/td>\n-$305<\/td>\n<\/tr>\n
3 rate cuts<\/td>\n5.58%<\/td>\n-$272<\/td>\n-$340<\/td>\n-$453<\/td>\n<\/tr>\n
4 rate cuts<\/td>\n5.33%<\/td>\n-$359<\/td>\n-$449<\/td>\n-$599<\/td>\n<\/tr>\n
Source: www.canstar.com.au<\/a>. Notes: based on owner-occupier paying principal and interest with 25 years remaining in Feb 2025 on the average variable rate for existing borrowers of 6.33% as recorded by the RBA. Assumes cash rate falls in line with CBA's current forecast for 2025 and assumes banks pass on RBA cuts in full.<\/span><\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Canstar.com.au<\/a> Data insights director, Sally Tindall says,<\/p>\n

\n

\u201cToday\u2019s inflation results are a step in the right direction and will be well received by the Reserve Bank.\u201d<\/p>\n

\u201cWhile there are still some sticking points in the data, particularly around insurances, rents and education, it\u2019s fantastic to see inflation for things like non-discretionary items fall to 1.8 per cent.

<\/div><\/p>\n

\u201cThis really helps to take the pressure off family budgets across the country.<\/p>\n

\u201cThis inflation result puts consideration of a rate cut at the very top of the RBA\u2019s agenda when it next meets on the 17th<\/sup> and 18th<\/sup> of February.<\/p>\n

\u201cThe RBA knows how tough it\u2019s been for borrowers with a mortgage and also renters under the pressure of the current cash rate.<\/p>\n

\u201cWhile annual core inflation might not yet be in the RBA\u2019s target band, it should be close enough to warrant action.<\/p>\n

\u201cA rate cut in February has the potential to inject almost $100 a month back into the budget of someone with a $600,000 mortgage with what should be at least one more rate cut waiting in the wings.<\/p>\n

\u201cWhile the RBA meeting is just under three weeks away, borrowers don\u2019t need to sit and wait for our central bank to make a decision; pick up the phone today and haggle with your bank for a rate cut.<\/p>\n

\u201cOf course, there\u2019s no guarantee the RBA will move next month, services inflation could still be keeping the Board up at night, enough to keep the cash rate in its current holding pattern for another couple of months. So if you\u2019ve got a mortgage don\u2019t bank on rate relief until it hits your bank account.\u201d<\/p>\n<\/blockquote>\n