Albanese’s election plans hinge on rate cut for mortgage belt

Anthony Albanese’s hopes of holding a string of mortgage-belt seats across the nation’s capital cities could hinge on the Reserve Bank delivering the first cut in official interest rates in almost five years amid warnings the institution will undermine its reputation if it does not move.

The RBA board will conclude its two-day meeting on Tuesday, and financial markets and most economists expect governor Michele Bullock to announce a quarter percentage point cut in the official cash rate, which has been at 4.35 per cent since November 2023.

Treasurer Jim Chalmers says the Reserve Bank will make a decision on interest rate settings based on economics, not politics.Credit: Alex Ellinghausen

A 0.25 percentage point cut would, if passed on in full, reduce repayments on a $600,000 mortgage by $100 a month. Since the bank started lifting rates before the 2022 election, repayments on that mortgage have risen by almost $1500 a month.

Despite the large increase, mortgage arrears and default rates have remained below levels normally associated with a cost-of-living crisis. But areas with large numbers of first-home buyers or those who borrowed heavily to move into a new home are showing clear signs of financial pressure.

The outer Melbourne suburb of Craigieburn, which covers parts of the Labor-held seats of Calwell and Scullin, has the highest arrears rate in the country, according to data compiled by S&P Global.

Arrears rates in other Labor-held seats in western Melbourne include Gorton, Lalor and Gellibrand.

Mortgage arrears rates are highest in Sydney in the Labor-held seat of Macarthur and the independent-held seat of Fowler, while there are large pockets of financial pressure in the neighbouring seats of Hughes, Werriwa, McMahon and Lindsay.

On the Central Coast, the seat of Dobell – held by Labor’s Emma McBride on a margin of 6.6 per cent – has the second-highest arrears rate in the country. Nearby Hunter, where Labor’s Dan Repacholi is facing a concerted push from the Nationals’ Sue Gilroy, has the highest arrears rate of any regional area.

Within the government, an interest rate cut on top of signs that inflation has eased while real wages grow at their fastest rate in more than a decade are considered pivotal to holding power at an election expected to be held by April 12.

Treasurer Jim Chalmers said the RBA’s decision would be based on economics and not politics.

“No matter what the Reserve Bank decides when they announce their decision tomorrow, the Albanese government’s focus won’t change,” he said. “Our focus is on getting inflation down, getting wages up, keeping unemployment low ... and as Australians, we have made a lot of progress over the course of the last couple of years.”

Opposition Leader Peter Dutton, who last week warned a rate cut could be followed by a rate increase, said any action by the Reserve Bank would not be enough to offset the cost pressures facing families.

“It’s not just if their mortgage comes down by 0.25 per cent, it’s the fact when you go to Coles or Woolies or the IGA that you’re paying more and more and more for food and for produce,” he said.

Any RBA decision will be the last under the bank’s current meeting arrangements. From the end of February, a new monetary policy committee will set interest rates, while governance of the bank will be handled by the board. The committee will hold its first meeting on March 30 and April 1.

Financial markets put the chance of a rate cut on Tuesday at almost 95 per cent, and a follow-up cut is expected by May.

Betashares chief economist David Bassanese warned if the bank held interest rates steady on Tuesday, it would hurt the RBA’s public standing and cruel the hopes of many Australians with mortgages.

He said the bank should consider a 0.35 percentage point rate cut, taking the cash rate to 4 per cent, which would then enable it to play down the prospect of a follow-up reduction in the near term.

Credit: Matt Golding

“To not cut rates this week would effectively renege on a promise to deliver interest rate relief once there was sufficient progress on lowering inflation – it would break the hearts of millions of Australians and undermine the RBA’s still-tarnished public reputation,” he said.

Deutsche Bank macro strategist Lachlan Dynan said that if the bank was to hold interest rates steady, it would lift the value of the Australian dollar, which has climbed to a two-month high of US64¢.

“Under a surprise hold, we see the Australian dollar to the US dollar rising by 0.5 per cent to 1 per cent,” he said.

Apart from deciding interest rates, the RBA will release its latest outlook for the economy which is expected to confirm a further easing in inflationary pressures. The heavy expectation for a rate cut on Tuesday is due to softer-than-expected inflation reports over the past two months.

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.