The RBA has again decided to hold interest rates which means the cash rate has remained at 4.35% since November 2023.
At the August committee last week, RBA governor Michele Bullock cited a slower than expected return towards target inflation as the reason to leave rates on hold.
The most recent data show inflation sitting at 3.8%, still outside the RBA’s target range of 2-3%.
But some observers are predicting a possible rate cut may still be on the horizon, despite the RBA’s warning that no rate cut was on the agenda over the short-term.
Shane Oliver is chief economist at AMP Capital. He sees the likelihood of a rate cut increasing, even before the end of the year, particularly if fears around a US recession continue, share markets continue to fall, and Australia sees an increase in unemployment locally.
Others read the governor’s comments as an indicator that rates will remain on hold for another six months or so.
With continued speculation around interest rates, the RBA governor is understandably seeking to curb inflation by removing public expectation of any rate relief this year. But, as is often the case, it’s difficult to predict with any certainty which way rates will move, if at all.
Forecasting interest rates with any degree of certainty is really difficult (read impossible), so why do financial professionals even bother? It turns out that to value the future price of an asset (e.g. a company or a property), one needs to have a guess at what the interest rate will be at a time in the future. This is one reason why share prices can change rapidly when an unexpected interest rate change is announced, like what happened in May 2022. Financial markets were not expecting an interest rate hike, but it happened and the ASX 200 fell by over 12% in the weeks that followed.
Will the next interest rate movement be a rise of a fall? Like most future events, we shall have to wait and see.
The important thing is to have a long-term financial strategy that accommodates uncertainty and acknowledges that no one knows exactly what future events will be or when.
A diversified approach to your investments is one that doesn’t overly rely on events that may or may not occur at a particular time – like the rise and fall of markets, or RBA interest rates. In uncertain times, it’s the kind of approach that can allow you to worry less about short term changes to government policy and instead focus on things that are meaningful to you.
If you’d like help with a strategy to build your financial peace of mind, get in touch with an adviser at Align Financial on (02) 9913 9995.
