API Magazine | RBA's 'Restrictive' Stance Leaves Rate Path Finely Balanced

Where Does the RBA's Rate Path Go From Here?

Craig Francis of API Magazine reports on RBA Assistant Governor Christopher Kent's assessment that current monetary policy is "somewhat restrictive," following this year's three rate rises. Oliver Hume Chief Economist Matt Bell provides market pricing on the likelihood of further moves and the outlook for cuts.

Housing Market Conditions and Monetary Policy

Kent said housing market conditions had softened noticeably in recent months, with prices declining in Sydney and Melbourne and the downturn becoming increasingly broad-based, while growth in new housing loans had fallen significantly and auction clearance rates had dropped below long-run averages. He noted the housing market appeared to have weakened by somewhat more than the recent rate increases alone would imply, which he said meant financial conditions were potentially more restrictive than the cash rate suggested on its own.

Kent attributed part of the downturn to the expected effect of this year's cash rate increases, and part to a pull-back after a long period of strong price growth, along with federal Budget tax changes affecting investors that had reduced demand by lowering after-tax returns from property.

What the Outlook Means for Rates and Buyers

Bell said financial markets had largely anticipated the RBA's hold decision, with around a 96 per cent probability of a hold priced in beforehand. He said markets were assigning just under a 50 per cent chance of another 25-basis-point increase by December, rising to slightly more than 50 per cent by March 2027, with cuts not expected until at least the second half of 2027.

Kent also pointed to global forces complicating the picture, including substantial investment in AI-related infrastructure supporting aggregate demand, and rising government deficits in major economies contributing to higher global neutral rates. He said these factors meant Australian financial conditions could be less restrictive than the cash rate alone would suggest, reinforcing a cautious approach before any move toward rate cuts.

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