The RBA is giving stable, “I’m working on myself” energy to kick off 2024. In their first meeting of the year, the RBA has decided to pause the cash rate at 4.35%. 

We’re trying not to get too excited, but when you’ve got a new Taylor Swift album announcement AND a cash rate pause announcement in the same week, it’s hard not to.

All four big banks predicted that the cash rate would remain steady this month, and all four were correct.

Their prediction is in response to inflation dropping to its lowest level in two years. The latest ABS data shows consumer price index (CPI) at 4.1% for December 2023 quarter.

Oh, and CPI is how the government measures inflation. You can read more about it here.

Slowing inflation doesn’t mean that prices are coming down, but that prices are rising slower than previous months. 

Are we done with cash rate rises now?

With inflation trending downwards now, a number of economists reckon we’ve seen the worst of it.

They predict that the cash rate will remain at 4.35% until at least August 2024, at which point we might start seeing some cash rate drops.

But not all economists are as optimistic - some reckon we might still see another rate rise. That’s because inflation may have dropped from its peak of 7.8% , but it’s still sitting well above the RBA’s target rate of 2-3%.

And because inflation isn’t always predictable, until the RBA’s target inflation is reached, future rate rises aren’t off the cards.

Remind me, what happens when interest rates rise?

When the RBA increases the cash rate, the banks will almost always follow suit and raise the interest rate on your loan. 

Experts say it takes around two or three months for individuals to feel the full impact of a rate rise on their cash flow… so the impact of these successive rises won’t be felt until the new year. 

And your interest rate on your savings account should increase too (but often doesn’t increase to the same extent).

Why does it feel like rates are so much higher than usual?

As recently as May 2022, interest rates were at a historic low of 0.1% and economic conditions in Australia were pretty stable. 

But with economic slowdown coming out of the pandemic, and  geo-political tensions globally, inflation has skyrocketed. The RBA has gone hardcore with thirteen cash rate increases in the past nineteen months.

Here’s what that’s looked like:

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