With the biggest news going around that interest rates are on hold, what does this mean for those investing in the market?
Next week the Treasurer Jim Chalmers will need to deliver cost-of-living relief in the budget without driving up inflation as the Reserve Bank revealed it expects price pressures to grow through the rest of the year, which may require another lift in interest rates. Is this just a shot across the bow to keep things in check or a distinct possibility?
The bank, which held the official cash rate at 4.35 per cent following its meeting on Tuesday, sharply raised its inflation forecasts and downgraded its outlook for the economy. Inflation, now at 3.6 per cent, is expected to lift to 3.8 per cent and remain at that level until the end of the year which indicates there won’t be any cuts during the year as previously expected
RBA Comments
The RBA governor Michele Bullock says she hopes the bank doesn’t have to raise interest rates again but “if we think we have to, we will”. She further said the board believed interest rates were in the right place to get inflation back within its target range of 2-3 per cent next year, but warned they could go up if price pressures failed to abate.
As a backdrop, and while growth slows, the jobs market is expected to remain strong. Unemployment, which is at 3.8 per cent, is forecast to gradually lift to 4.3 per cent over the next two years which is line with what we are seeing with companies dropping off staff, heavy re-deployment withing organisations and sectors such as retail coming under extreme pressure. Real wages, which have started to grow are now tipped to slow in the coming months due to the higher inflation outlook and a gradual weakening in wage increases for workers.
So, what does this mean for share market investors and the property market in general?
Well, a hold on rates is certainly welcomed by most as consumers are struggling with higher interest rates on mortgages and cost of living. This has spilt into consumer spending cuts across retail and restaurants across Australia, however, has just started to hit the Perth retailers this last 3 months. The high interest rates have not yet dampened fully the insatiable need for property, but this could be argued as being a pure supply-demand driven uplift. It is expected that now autumn has come that the property market might abate over the winter months, but time will tell and will depend on the supply to market. For stock market investors, any increase in rates would likely see a market drop off and the news of rates holding this week saw a nice uplift this last couple of days as the expectation of a rate increase diminished with comments for the RBA.
Let’s roll on budget night and see what is in store!
Contact the team today if you’ve any questions on how this impacts you and your financial journey.