RBA announces September interest rate

Broker, non-bank lender react to decision

RBA announces September interest rate


By Ryan Johnson

The Reserve Bank of Australia has opted for stability, keeping the official cash rate unchanged at 4.10% for September as inflation continues to track towards the RBA’s target band.

With the cash rate paused for the third consecutive month, the announcement was in line with the expectations of 97% of economists and all four major banks, according to Finder.

This came after the latest economic indicators showed subdued household spending, stabilised wage growth, and inflation tracking at 4.9% year-on-year down from its peak (7.8%) in December.

In what will be his last board meeting as RBA governor Philip Lowe (pictured above left) said inflation in Australia has passed its peak but inflation was “still too high” and will remain so for some time yet.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so," governor Lowe said, who will be replaced by current RBA deputy governor Michele Bullock on September 17.

"In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month. This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook." 

How will the September cash rate pause affect the mortgage market?

The new era of the RBA will begin with little trust in the central bank. A Canstar study showed 46% of Australians not confident in the Reserve Bank and government’s ability to ease inflation this year.

Peter James (pictured above centre), founder of non-bank lender Mortgage Ezy, said not increasing rates was the “right move” as it provided the industry and borrowers alike with “much-needed breathing space”.

“The sequence of 12 interest rate hikes starting from May 2022 has indeed impacted affordability for existing borrowers and created challenges for loan qualification for potential buyers,” James said. “Amidst this, market uncertainty has been a major concern.”

While property prices have held steady or even increased this year, mortgage sizes are at record highs.

Borrowers have faced increased monthly loan repayments of an estimated $2,435 per month on a 30-year $1 million fixed rate loan since the May 2022 cash rate rise, according to Canstar.

James said the unprecedented increases in 2022 and 2023 had caught many buyers off guard.

“The rapid pace of the 4% rise in just over a year contrasted with Philip Lowe's earlier statements about rate hikes not occurring until 2024 at the earliest, leading to significant disruptions in consumer confidence,” James said.

“Even if the rare circumstance arises where a further cash rate increase is deemed necessary, maintaining interest rates at their current level for an extended period is crucial to allowing the economy to regain stability.”

Agreeing with James, Bradley Donnelly (pictured above right), a finance broker at Green Finance Group said stability in decisions would help customers “plan for the future”.

“I have had customers over the past 12 months that have had plans to build their dream homes and due to the length of time it has taken to be able to get build contracts etc together their borrowing capacity has halved in some cases,” said Donnelly, who is an excellence awardee for the Adelaide Bank Young Gun of the Year at this year’s Australian Mortgage Awards.

“Having a decent idea about certainty of rates will help us guide our customers through forward planning a lot easier.”

What finance products are more favourable in a stable market?

With mortgage rates dropping while refinancing continues to rise, brokers must continue to stay attuned to the latest trends in the market.

“The majority of people are believing we’re nearing the peak in relation to the cash rate, and if history means anything, when we’re at the peak of the market, home loans tend to be substantially better off when they’re variable,” Donnelly said.

From the lenders’ side, James said non-banks were navigating a “necessary transition” from prime loans to specialty loans.

“This strategic shift is driven by the evolving landscape, where banks have withdrawn from alt doc, non-resident, and SMSF lending. Consequently, non-banks have stepped in to fill these voids, offering tailored solutions to borrowers in need,” James said.

However, James said it was important to note that specialty loans came with higher funding costs compared to conventional prime loans.

“The increased complexity and risk associated with specialised lending segments contribute to this cost differential,” he said.

“As non-banks pivot to meet the changing demands of borrowers left underserved by traditional lenders, their dedication to innovation and adaptability remains paramount. This strategic migration showcases their commitment to bridging lending gaps and supporting borrowers as the financial landscape continues to evolve.”

Has the cash rate peaked?

After the announcement, the focus now turns to whether the official cash rate has peaked.

Westpac, Commonwealth Bank (CBA), and ANZ have all forecasted the end of rate rises for the foreseeable future, while NAB expects a peak of 4.35% by November, according to Rate City.

Donnelly said he thinks the cash rate has peaked, based on the latest inflation and unemployment rate figures.

“If inflation is too high the RBA tend to tighten their monetary policy which in turn increases interest rates. This helps reduce inflation, but it also is likely to reduce economic growth, higher rates mean less spending, you might see customers choose to eat more at home or travel less which then in turn puts pressure on unemployment,” Donnelly said.

“Higher unemployment rates and lower inflation usually means the RBA will slow down or stop rising interest rates.”

James said trying to predict the cash rate was like peering through a foggy crystal ball.

“Attempting to predict the intricate choreography of interest rates is akin to unravelling a puzzle woven with countless local and global threads. While the RBA’s decision to maintain an unchanging cash rate hints at a portrait of stability, it's not the last definitive brushstroke,” James said.

“The chapters ahead will be scripted by the evolving drama of inflation trends, employment statistics, and the relentless ebb and flow of global economic currents. While the current stance suggests a temporary hiatus in rate hikes, the narrative could pivot abruptly based on these unpredictable variables.”

Related Stories

Keep up with the latest news and events

Join our mailing list, it’s free!