Navigating Interest Rates & Financial Resilience in 2024

Navigating Interest Rates & Financial Resilience in 2024

As Australia steps into 2024 with a focus on economic resilience, one key aspect that is under scrutiny is the trajectory of interest rates and how they will affect many Australian families. After enduring a tough year financially in 2023, many Australian households will be wondering what lies ahead in terms of interest rate shifts? Let’s delve into the predictions and implications surrounding interest rate changes in Australia for the 2024.

Inflation is set to continue to play a pivotal role in shaping the RBA’s decision on whether to continue to raise interest rates in 2024 or provide much needed relief to Australian homeowners. The RBA has cited Australia’s persistently high inflation as the number-one reason behind it’s repeated interest rate increases. Similar to central banks globally, the RBA remains cautious about potential entrenchment of inflation expectations. This scenario could necessitate significantly higher interest rates and lead to elevated levels of unemployment in order to counteract.

The impact of high inflation on the economy is multifaceted. It tends to distort economic activity as individuals defer substantial economic endeavours to shield themselves from its effects, resulting in a wastage of valuable economic resources. Additionally, high inflation can have adverse consequences on productivity, diminish the value of savings, strain household budgets, and create challenges for businesses in terms of planning and investment. The RBA is mindful of these complexities and aims to navigate a balanced approach to ensure economic stability and growth.

How are Australian households coping? And what does this mean for the property market?

The 13 interest rate hikes by the central bank since May 2022 have placed certain households in the precarious realm of “mortgage stress”. Over the past 12 months, overall consumption has seen a minimal increase of just 0.4%, and when analysed on a per capita basis, it has declined by 2%. Household spending has been maintained primarily through a decrease in the household savings rate, effectively compensating for the decline in household income.

The consensus from economists from the big four banks have shared that it is likely interest rates will remain stable for the majority of 2024 before all predicting a potential interest rate cut between August to December 2024.

The Commonwealth Bank are predicting that interest rate cut to happen in September with rates dropping down to 2.85% by mid-2025. While Westpac are in agreeance with CommBank in regard to the September rate cut, they are predicting that it won’t be until December 2025 before we see the interest rates down to 2.85%.

NAB are predicting an earlier rate cut around August but are guessing the rates will remain around that 3.1% by March 2025. And ANZ are predicting it won’t be until December before we see the next rate cut and the rates will remain higher than the other 4 banks of around 3.6% in June 2025.

And while many Aussies are feeling the pinch, the property market has proven it’s resilience, with interest rate hikes not dissuading both home buyers and investors. While these rate increases have affected their serviceability, prompting a reconsideration of budgetary allocation, they haven’t deterred their participation in the property market.

As inflation remains manageable, a surge in investor confidence is anticipated, potentially leading to an influx of investors into the market for 2024. This renewed confidence is expected to manifest in house price hikes, particularly in sought-after areas.

But the question that every Australian household wants to know is “will interest rates continue to rise in 2024?” Most economists and the RBA are not really sure. Factors such as international trade tensions and the evolving risks of the economy will influence the RBA’s decisions on interest rates. The next meeting of the RBA board has just finished and it has been announced that they’re keeping interest rates on hold at 4.35 per cent. But in the statement accompanying it’s announcement, the RBA board said that “a further increase in interest rates cannot be ruled out”.  So it remains to be seen whether the board will make any further changes in 2024 or not.

As we navigate through 2024, staying informed about these predictions will be crucial for households and businesses alike to make informed financial decisions.