Reserve Bank ‘increasingly confident’ rate reduction is coming sooner than later for struggling Aussie homeowners

Struggling Aussie homeowners could get a rate cut sooner rather than later as the Reserve Bank says it is “increasingly confident” about a reduction.

Relief could be coming sooner rather than later for Aussie homeowners, as the Reserve Bank of Australia (RBA) reveals it is “increasingly confident” about an upcoming rate reduction.

The latest minutes of the RBA’s monetary policy reveal the central bank is more confident that inflation is moving sustainably toward target.

Mortgage holders will hope this is a sign it is time to start cutting rates when the central bank meets again in February.

However, it’s still too soon to conclude the battle is won – given a recent pick-up in household spending and a tight labour market.

The RBA has given a major clue that it might be looking to cut interest rates. Picture: NewsWire / Jeremy Piper

The RBA board has repeatedly said it needs to be confident inflation is falling towards the target band of 2 to 3 per cent per annum before the central bank would move on rates.

According to the latest minutes, the RBA said monetary policy needs to be restrictive until members were confident inflation was sustainably moving towards the target range.

During this meeting the RBA left the official cash rate at 4.35 per cent.

“They agreed that they had gained confidence about this since the previous meeting but risks remained,” the board said.

IG market analyst Tony Sycamore said the change in language by the RBA was significant.

“The statement removed language around vigilance toward upside inflation risks and noted the board was “gaining some confidence that inflation is moving sustainably towards target,” he said.

“The Australian rates market starts the new week pricing in a 58 per cent chance of a 25bp cut from the RBA in February, with a first full 25bp cut priced for April 2025.”

The board views the current rate settings as restrictive enough to tame inflation, although they had minimal tolerance to accommodate a more prolonged period of high inflation than currently envisaged.

Recent GDP figures from the Australian Bureau of Statistics (ABS) showed anaemic growth of just 0.8 per cent for the 12 months to September.

This was the slowest period outside of covid since the early 1990s.

Headline inflation fell to 2.1 per cent over the 12-months according to the monthly figures, mainly due to state and federal governments energy rebates.

But the all-important trimmed mean, or underlying inflation rate which the RBA monitors, rose to 3.5 per cent for the month of October. In September this measure was at 3.2 per cent.

The RBA says it will continue to monitor and will change interest rates accordingly, should the economy continue to weaken.

“At the same time, if the future flow of data continued to evolve in line with, or weaker than, their expectations, it would further increase their confidence that inflation was declining sustainably towards target,” the board said.

“If that were to occur, members concluded that it would, in due course, be appropriate to begin relaxing the degree of monetary policy tightness.”

While the RBA is becoming more confident in a rate cut it wants to see inflation continue to fall. Picture: NewsWire / Nicholas Eagar

RBA members say reducing inflation remains the priority even in a weakening economic environment.

“Returning inflation to target remains the Board’s highest priority and it will do what is necessary to achieve that outcome,” they said.

The RBA has received the backing from the International Monetary Fund labelling the current restrictive monetary stance, labelling it “appropriate” while warning governments against expansive fiscal policy.

The warning against extensive public spending that has propped up economic activity comes as Australia remains on a narrow path to a soft landing, with risks tilted to the downside, the International Monetary Fund (IMF) said in its overnight assessment report.

According to the latest update from the IMF, Australia’s economy is tipped to grow from 1.2 per cent in 2024 to 2.1 per cent in 2025 as real income growth and tax cuts potentially boost private consumption while public demand remains strong.

“Australia remains on a narrow path to a soft landing, but risks are tilted to the downside. Growth slowed in the first half of the year, with household consumption weak as real incomes remained soft,” the IMF executive board said.

Originally published as Reserve Bank ‘increasingly confident’ rate reduction is coming sooner than later for struggling Aussie homeowners