Media Release | 18 June 2024
Commentary from The Agency's Managing Director and Group CEO Geoff Lucas on the RBA's June interest rate decision.
The RBA decision to hold the cash rate at 4.35 per cent was largely expected, given the most recent data on CPI, especially services inflation which is proving very difficult to reduce. We continue to expect there will be no reduction in interest rates in 2024.
RBA policy is of course dependent on most recent economic data, and whilst we believe interest rates will remain steady this year, there remains a risk that the next move could be up if inflationary pressures were to continue to persist. National rent increases are currently annualise at 8.5 per cent and are expected to continue to rise in the short term. This along with the stage 3 tax cuts (estimated to be the equivalent of some 0.7 per cent in interest rate cuts) from 1 July are just two factors contributing to inflationary pressures. Federal and State government spending (especially on infrastructure) will continue to exacerbate labour shortages and construction costs will act to further hamper efforts to reduce inflation in the short term.
The most recent unemployment data indicates an underlying strength in the economy, notwithstanding cost of living pressures impacting consumer sentiment. The RBA will be looking for signs of a material uplift in unemployment before considering any future rate cuts. To date, the national unemployment rate of 4 per cent is demonstrably lower than pre COVID.
The Australian residential property market continues to defy both cost of living pressures and 13 interest rate increases since May 2022. The most recent quarterly price growth, extrapolates to an annual growth of 8.4 per cent, eclipsing last year’s annual growth of (8.1 per cent). We continue to believe this annualised rate will soften between now and the end of 2024 as the lagged impacts of interest rates and cost of living continue, and when pandemic cash support surpluses are beginning to become exhausted. A continuation of the current interest rate settings is likely therefore to see a mild softening in the rate of growth nationally, however as we’ve seen there is record variability amongst capital cities with Perth annualising 24.8 per cent growth, Adelaide 18 per cent, Brisbane 16.4 per cent, Sydney 5.6 per cent and Melbourne -1.2 per cent .
Demand and supply will continue to be the key drivers in house price movements, especially whilst we are in an environment of limited interest rate changes. With Perth and Adelaide listings more than 40 per cent below the five year average, and Brisbane down 34 per cent, we expect these markets will continue to outperform in terms of price growth for the balance of 2024.