Rate that stops the nation: Victorians warned RBA might not cut interest rates because of employment

Australia’s biggest banks have warned Victorians there is still a significant chance interest rates will not be cut next week, largely due to one key reason related to employment.

Interest rates could remain on hold because the we’re ‘too securely employed.’

Australia’s biggest banks have warned Victorians there is still a significant chance interest rates will not be cut next week, largely because we’re too securely employed.

But if the Reserve Bank does announce its first reduction since November 2020, analysis of past reductions shows it could lead to an at least $10,000 increase in home values for more than 180 Victorian suburbs in a single month.

For those already paying Victoria’s $614,730 average loan, the predicted 0.25 percentage point cut would mean a $93 a month saving on a $4017 a month standard repayment — based on a typical 6.15 per cent standard variable rate.

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NAB chief economist Alan Oster had one of the lowest levels of confidence in a cut, rating it as a 60 per cent chance, but noted that if the RBA did reduce the nation’s cash rate, which underpins mortgage costs, he was expecting further cuts in May, August, November and again next February.

Mr Oster said his big concern was a very strong labour market, with employment data to be released next Thursday — after an interest rate decision is made.

REA Group Senior Economist Angus Moore backed Mr Oster’s confidence in a series of cuts over the year, flagging they expected as many as four to be announced by Christmas.

“Whether we see that many will depend on how inflation is tracking,” Mr Moore said.

“We had good news on that front recently, with inflation appearing to come down back towards the RBA’s target band faster than initially thought.

PropTrack economist Angus Moore has backed Mr Oster’s confidence in a series of cuts of the year.

“But there is still a lot of uncertainty, and any future rate cuts will depend on whether that better-than-expected trend is sustained or if it was just a one-off.”

Economic modelling from Ray White shows house prices could surge as much as $10,000 in a month in more than 180 Victorian suburbs and towns following a single 0.25 percentage point rate cut by the Reserve Bank.

Family friendly suburbs including Doncaster East, Templestowe, Glen Waverley, Vermont and Wheelers Hill are high on the list of the biggest beneficiaries, though areas like Toorak and Brighton where multimillion-dollar home prices can drive some of Melbourne’s biggest home loans are likely to have the highest individual benefits.

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The rest of the nation’s big four banks were more confident, with the CBA and ANZ rating the prospect of a cut at 80 per cent.

Westpac’s top economist Lucy Ellis said she also felt it was 80 per cent certain, but flagged the RBA would be weighing the risk that strong employment figures could lead to employers bidding up wages in a bid to lock in the best talent and “reignite inflation” as their staff spent more money.

Hundreds of thousands of Victorians are hoping for a rate cut this week.

“And the figures in the US show that inflation is not easily licked,” Ms Ellis said.

AMP chief economist Dr Shane Oliver said he believed there was a 75 per cent chance the cash rate would be reduced by 0.25 percentage points next week.

He noted there was still a one in four chance the RBA would conclude there was no hurry to cut rates as inflation is heading in the right direction and the overall Australian property market was in generally good shape.

Loan Market mortgage broker Jacob Decru said there were already signs the prospect of interest rate cuts were buoying Victorians’ confidence, with a growing number of calls to his offices from buyers planning to purchase a home.

However, while a single rate cut would boost that a bit more, Mr Decru said it would take multiple reductions to really get Melbourne’s property market moving.

Victorian Chamber of Commerce and Industry Chief Executive Paul Guerra said it was also possible a lower cash rate could boost spending and drive economic activity across a number of sectors.

“We know there is both a cost-of-living and cost-of-business crisis, a reduction in interest rate, will start to ease that and stimulate a return to growth,” Mr Guerra said.

“It’s essential to ensure business in Victoria and the rest of Australia can move to real growth as the rest of the world starts to mobilise.” 

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Originally published as Rate that stops the nation: Victorians warned RBA might not cut interest rates because of employment