The Reserve Bank’s tone has suddenly changed from the May official cash rate (OCR) review where they were jawboning the market by suggesting there wouldn’t be any respite on rate cuts until well into 2025.

Now, in the bank’s most recent review on July 10, they have removed any talk about the cash rate needing to stay restrictive or potentially tighten further.

A week later, on July 17, we had the updated inflation numbers which showed the slowest pace in inflation growth since the June quarter in 2021.

We all know what happened since that quarter three years back, with the bank having to play catch up after the genie well and truly jumped out of the bottle: the cash rate increased from its all-time low of 0.25 per cent to today’s 5.5 per cent.

It’s worth noting that while the headline annualised inflation number is looking much healthier at 3.3 per cent, especially compared with the 7.3 per cent we had at the same stage two years ago, the domestic side of inflation (known as non-tradables) continues to stay stubbornly high. The most recent number has registered at 5.4 per cent.

Job Losses

While the Reserve Bank is likely to want to see how the September quarter inflation numbers look when they review them in October, it is set to use the November 27 cash rate review to start a loosening cycle.

There’s a chance the upcoming update on job losses in the June quarter (due August 7) may push the bank to move sooner at either the October review or even on August 14.

Financial markets have priced in a 50 per cent chance of a cut at the upcoming review, a 100 per cent chance of an October cut, and the equivalent of a three 25 basis point cut by November.

Most economists are still leaning towards the November 27 review date as the likely first reduction, but as mentioned above this could easily be brought forward.

One-Year Rates

There will be a balance moving forward between looking at the six-month fixed rate, which can be had at a significant discount to floating rates, or looking to float and temporarily wear higher interest costs if a borrower expects the rate to drop fast enough to make it worthwhile.

It’s also worth noting that some banks are pricing the one-year rate more aggressively, and although it’s been popular, in my opinion it’s too long to fix right now.

As a mortgage advisory business, we have noticed a large increase in investors getting ready with the general assumption that rate reductions will put a floor under further property price reductions.

While the housing market is in the doldrums and activity from investors has been weak for some time, I expect many to re-enter. Let the fun begin!