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OCR Review: May 2024

As expected, the Official Cash Rate stayed at 5.50% when the Reserve Bank completed its latest review last Wednesday. We have just ticked over the 12-month mark since the last increase and while there was some brief concern about the chance of a hike on the back of worse than expected domestic inflation numbers this was followed by also worse than expected job losses and a survey conducted that show businesses expectations around inflation were not as bad as what the Reserve Bank had thought. This last point is positive news as it means that businesses are less likely to feel like they must continually hike their prices to keep up and that wage growth is getting more under control.

One point of concern at the latest review is that the Reserve Bank put a 60% chance of a further hike before the end of the year. While the labour market situation is improving regarding inflation there are still other factors such as higher rents, insurance costs and council rates which are keeping domestic inflation high. Markets had already been pricing in rate cuts prior to the end of the year so only time will show whether the Reserve Bank is jawboning to keep the pressure on in their efforts to get inflation down or whether they are seriously considering another rise.

The Reserve Bank kept rates too low for too long and the very real risk is that they repeat the mistake this time but keep them too high. The country is already in a ‘double-dip’ recession and as there tends to be a 18-24 month gap between the decision around an OCR review and its flow on effects there is a concern that they will wait too long before providing relief.

it is worth noting that we are not likely to hear too much from the Reserve Bank with what they intend to do with interest rates until August. While the next review is on the 10th of July at this stage it is almost certain that the Reserve Bank will keep the cash rate as it is as they will be wanting to see the next inflation data which comes out on the 17th of July reflecting how the June quarter ended up and then how many more jobs have been lost in the same quarter which they will find out with updated numbers due on the 7th of August. The OCR review which is due the following week on the 24th of August will give the clearest indication on if we will see rate drops this year.

As we expect the Reserve Bank to implement the debt-to-income restrictions relatively shortly if you are unsure how you look to bank at present, are wanting to extend interest only terms or get preapproved to be in a position to take advantage of the current buyers’ market contact us HERE and we can arrange a review for you.

Kris Pedersen
28 May 2024