This isn’t a drill. Your mortgage is officially on a knife-edge, and Compare the Market’s Economic Director David Koch just laid out the terrifying truth.
The Reserve Bank of Australia faces a monumental decision on Melbourne Cup Day, with a crucial inflation report on October 29 acting as the fuse.
Koch warns of a “nuclear option” – another rate hike – if inflation stays too high, creating a 50/50 chance that could either deliver relief or inflict serious financial pain.
“The September quarter CPI figure, due out on October 29, is the one to watch,” Mr Koch said.
“Unemployment is on the rise, which is a warning sign that the RBA may need to cut rates and get the economy moving again.
“But if underlying inflation (that’s the trimmed mean) comes in at 3 per cent or above, the Reserve Bank may have no choice but to raise rates. That is the nuclear option.
“At this stage, they really could go either way.”
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The latest CPI release for August, released in September, showed headline inflation rose to 3 per cent.
But according to Mr Koch, it’s the quarterly inflation data that will paint a clearer picture around factors that influence inflation, including export demand and the general state of the global economy.
“We’ve had a couple of back-to-back monthly CPI data figures come in slightly higher than expected, which is why we saw a hold on rates last month,” he said.
“The RBA has to be so careful right now. It’s a bit of a balancing act and all about keeping that inflation figure inside the target rate.”
Mr Koch pointed to recent comments from RBA Governor Michele Bullock, who has cautioned Australians not to assume inflation will continue to fall.
“She’s been uncertain for weeks. If we get a number like 3.2 per cent or 3.3 per cent, the RBA could increase rates to bring inflation back under control,” he said.
“It’s 50/50. If inflation comes in around 2.5 per cent, we could see a cut. But anything higher will make the RBA cautious and anything above 3% could trigger a hike.”
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Compare the Market economic director David Koch. CTM Jono Searle
Borrowers saw rates slashed in February, May and August this year, with interest rates cut by a quarter per cent each time.
There are still two more RBA board meetings before the end of the year.
If rates drop even one more time in 2025, it could have a significant impact on household budgets.
Regardless of the RBA’s decision, Mr Koch said many borrowers had the power to reduce interest on their mortgage by negotiating lower rates.
“Switching could deliver better relief than a standard RBA rate cut because the difference between rates across lenders can be enormous,” he said.
“The average variable rate is about 5.75 per cent, but we have rates as low as 5.34 per cent. “Meanwhile, there are two-year fixed rates around 4.75 per cent – that’s equivalent to four RBA rate cuts. This could be a great option for borrowers who are willing to fix their rate.
“If you can lock in a full percentage point difference for even six months, you could be ahead. Don’t wait for the RBA. Take control of your own rate.”
