RBA dashes hopes of rate cut as borrowers battle house hunting – realestate.com.au

Home borrowers circling the property market relentlessly in search of a gateway to their first home are feeling discouraged after expectations of another rate cut have all but been abandoned.

During a fireside chat at the Australian Business Economists dinner in Sydney ahead of this week’s quarterly inflation figures, Reserve Bank of Australia (RBA) Governor Michele Bullock hinted that forecasts of rate cuts are unlikely to materialise.

Joined on stage by Michael Plumb, the bank’s head of economic analysis, Ms Bullock told the audience that the recent spike in unemployment meant the labor market remains “a bit tight”, indicating upward pressure on wages.

While waiting for crucial inflation data on the economy to make a decision on rate cuts, Ms Bullock said the RBA has already received conflicting data suggesting inflation is higher than expected while the labor market is lower than hoped.

Worries about unemployment

The unemployment rate is at 4.5%, slightly above the RBA’s forecasts of 4.3% expected by the end of this year. Meanwhile, inflation in the September quarter was also stronger than expected.

Although monthly figures can be volatile, the increase in unemployment was a surprise. This could impact the possibility of a rate cut on November 4 and quickly set the price aside earlier this month amid expectations of the board’s decision.

“Jobs are still being created, but not as many,” Bullock said.

“The labor market is still a bit tight. Jobs are still being created, but the labor supply is no longer growing as fast as it used to. This means that unemployment may rise somewhat.”

“It is difficult to get the right skilled labor. We are aware that we are trying to keep unemployment as low as possible without fueling inflation. We think we are close, but it is very uncertain, so we have to be prepared for different possibilities.”

Ms Bullock continued: “When we look at the forward-looking labor market indicators, we always thought unemployment would rise a little. Maybe unemployment has risen a little more than we thought, but it’s not a huge amount. We’ll have to wait for some more data and forecasts to come in.”

Ms Bullock warned that the labor supply is not growing as quickly as it used to. Photo: News Corp Australia

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“Then we can make some decisions about whether we can make some rate cuts to address the labor market or whether we’re more concerned about inflation. But let’s be positive. Inflation is back within the range, not yet in the middle of the target range, and the unemployment rate is still quite low, so we’re in a pretty good position.”

Stay the course

The comments point to another rate cut, suggesting homebuyers are unlikely to see a reduction in borrowing costs in the near future.

The RBA has also analyzed services inflation, which covers healthcare costs, insurance premiums and the cost of building a new home. Some of these costs slowed in the June quarter, while others remained stable.

REA Group senior economist Eleanor Creagh says today’s inflation data will be crucial to next week’s decision. Photo: Getty

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Early data indicators suggest housing costs and market services appear high, forcing the board to remain cautious, Ms Bullock revealed.

REA Group senior economist Eleanor Creagh said Governor Bullock’s message was clear.

“If core inflation ends up around 0.9% this quarter, it will be a material miss and significantly reduce the likelihood of an immediate cut,” she said. ‘The bank remains data-dependent in driving their next step and will not be overwhelmed by monthly noise.

“They will weigh the full quarterly data, especially the reduced average, before easing further. As a result, the inflation data for the September quarter will be the decisive information. This will determine whether we get a rate cut at the RBA meeting in early November.”

Decision time

Ms Bullock also told the audience that the RBA should be modest in forecasting.

“You do your best, but things don’t always turn out the way you predicted and you have to be willing to accept that you may have misread something and change your mind.”

Fresh off a trip to the United States to meet with global central banks, Bullock also shared insights from her global counterparts on stage.

While inflation is falling globally, she noted that financial markets are optimistic due to geopolitical tensions. Some within central banking circles also expressed concern about deficits and sovereign debt in their respective parts of the world.

Ms. Bullock recently met with other representatives from other global central banks in the United States. Photo: Getty

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Wondering whether the financial markets could turn negative, Bullock said: “Some people are afraid it will all end in tears.”

Bullock, who has been in the lead role at the RBA for two years, also told the audience that she is pushing for cultural change within the RBA, introducing processes that welcome different opinions, which Bullock says leads to better decisions.

Reducing inflation and preserving some of the gains in the labor market has been both a challenge and a major achievement in this role, she said.

The RBA’s next board meeting is scheduled for November 3 and 4 and will conclude with the decision on the cash rate.

This article first appeared on Mortgage Choice and is republished with permission.