Will the RBA Drop Rates in February 2025?

Could a rate cut from the RBA in February 2025 reshape the property market landscape? Tune in to the Taylored Property Wealth Podcast as I, Casey Taylor, unpack the latest inflation figures and analyze the shifting predictions from the big four banks. With the Consumer Price Index (CPI) showing a modest rise of 0.2% this quarter, we delve into the key trends impacting these figures, from recreation and culture to the effects of the Commonwealth Energy Bill Relief on household expenses. By understanding these dynamics, you'll gain valuable insights into the potential timing and impact of a rate cut on property investment.

We explore why the Commonwealth Bank, ANZ, and Westpac now forecast a rate cut in early 2025, and what this could mean for investors looking to get ahead of a potential market shift. As the trimmed mean of inflation starts to stabilize, signaling possible rate reductions, we discuss the opportunities and strategies for capitalizing on this anticipated change. Prepare yourself for a property market poised for transformation!

Transcript

Speaker 1: 0:00

Welcome back to another episode of the Taylor Property Wealth Podcast. My name is Casey Taylor and in this episode of the podcast, we are going to be discussing whether the RBA are going to drop the cash rate in February 2025. We're going to be breaking down some of the data across the inflation figures from last week and some of the predictions of where the big four are now predicting rate cuts to start taking place. So it's definitely shifting. We are close to a rate reduction. It's just a matter of when. So let's get into it, and we're going to be talking first about inflation data and the consumer price index. So the CPI rose 0.2% this quarter and over the last 12 months to the December 2020 quarter, the CPI rose 2.4%. Some of those most significant rises were recreation and culture, which was up 1.5%, and alcohol and tobacco 2.4%. Some of the partial offsets with the rise were housing that decreased 0.7%, and transport that decreased 0.7% as well. So it's positive that transport's actually gone backwards a little bit after kind of the petrol crisis not crisis, but the issues going on with, I guess, the cost of petrol and where it's been in the past are taking into consideration and some of those volatile things or some of the government schemes that are in place to help that inflation and some of those costs at the moment. One of those is the Energy Bill. Relief, which is the 24-25 Commonwealth Energy Bill, started in July 2024, helping offset some of those household costs associated with electricity. So that's positively influenced the September and December 2024 quarters. All right, so we'll just break down, I guess, a couple of the different groups and where they're trending for CPI and the changes. And where they're trending for CPI and the changes. So September quarter 2024 to December quarter 2024, food and non-alcoholic beverages rose 0.2%. Alcohol and tobacco rose 2.4%. Clothing and footwear rose 0.1%. Housing down 0.7%. Furnishings, household equipment and services down 0.2%. Health down 0.2%. Transport down 0.7% and communication down sorry, increasing 0.5%. And recreation and culture up 1.5%. We also had education sit flat and then insurances and financial services up zero point eight percent. So that's as per the abs data that has been released. So that inflation is really starting to to settle, which is it's good to see, um, especially in that december quarter. So some some, definitely definitely some positives out there regarding that.

Speaker 1: 3:28

Okay, now what the big four are now starting to predict and they're starting to change their predictions based off the release of that inflation data just last week. So CBA and ANZ have announced first that they're expecting a rate cut in February 2025. Westpac have now jumped on board, expecting a rate cut in February as well. Interesting to see what NAB does. Whether they update their figures or not. It's getting close. Based on predictions of that Now, the Westpac chief economist, lucy Ellis, has said that it's going to happen Now.

Speaker 1: 4:18

She used to be formerly the assistant governor economics at the RBA, so she's got a pretty good intel of, I guess, their mindset, how they think about these things, and she believes her words is on regarding that rate cut. So we don't really know like what's that rate cut going to look like? Is it 0.1%, is it 0.2%? We don't know. No one's got a crystal ball, but rate cuts are close and we We've got a lot of people reaching out at the moment because they understand what's about to take place and that opportunity to get in before a massive amount of the herd flood back into the marketplace. So if you can do that, do it. Get ready to rumble, because things are going to start heating up in the next few years. Are going to pump Cool, cool. Are going to pump Cool, cool. So just to confirm as well, the annual trimmed mean that the RBA looks at to take into consideration some of those fluctuating items is 3.2% in the December quarter and down from 3.6% in the September quarter. They're taking into consideration things such as electricity, automotive fuel in this quarter as well. So they're, just, like I said, taking out those fluctuating things just to give a more accurate representation of where they believe it is.

Speaker 1: 5:55

Now I just want to touch on as well the national prices of property, because it's a good thing to take a look at and understand that not all property prices move the same. Despite seeing prices decline in some areas and the national housing decline, there's still a lot of markets that have performed and definitely on then a suburb level, there's markets that have done 15, 20% in the last 12 months. So looking at just that head number nationally, you can really get stuck on thinking prices haven't done anything, when that is furthest from the truth. So as of 31st of December 2024, corelogic reported nationally that prices went back with 0.1%. Sydney went back 0.6%, melbourne went back 0.7%, brisbane did 0.5%, adelaide did 0.6% and Perth did 0.7%. Hobart went backwards 0.5%, darwin Row 0.4% and Canberra went backwards 0.5% for the month of December. So looking at it, at that national figure, it's gone backwards. But if we break down and you got into the right marketplace, the right LGA in those marketplaces in the right suburb, you've done extremely well in the last 12 months. So it's just an important thing to look at. We look at that ABS data and prices are going back holistically on average, but once you break it down into those individual locations, that's not the case, alrighty.

Speaker 1: 7:47

So the last little thing I want to touch on regarding the predictions of where rates are going to go is the ASX rate indicator calculation. Now, as of the 16th of January, there was a 27% chance there was going to be no change and there was a 73% chance that there was going to be a decrease to 4.1%, predicting 0.25% basis point reduction. Now, fast forward a couple of weeks to the 29th of January, which was yesterday, the decrease now is at 95% and the no change is 5%, and that's based on just that release of the inflation data. So a big shift, a big increase over 20% increase to believing that there's going to be a reduction of 0.25% basis points. The RBA catch up I believe it's on the 15th and 16th of February, roughly halfway through the month, so a couple of weeks to go before we see that take place. So it's going to be interesting what unfolds over the next couple of weeks.

Speaker 1: 9:05

We've got lots of countries that are dropping rates already and we have not seen that rate reduction. Based on history, we do as a country, as the RBA, take a little bit longer to take action on those rates. So it's going to be interesting to see what happens in the next couple of weeks. We are anticipating that there is going to be a massive amount of people jumping into the marketplace and it's going to really create that pressure cooker for growth and we're going to see a boom again, based on the supply and demand issues that we've got going on in the country. And then, once we see rates reduce, it's really going to ramp up. It's still been pumping in the right locations despite rates not going anywhere and it's just going to be that fuel to the fire once we see people's borrowing capacities improve, that sentiment change. That's already taken place as people have gotten used to where those rates are at now, but it's going to ramp up. So if you have the borrowing capacity now, proactively go out and speak to your mortgage broker, get your pre-approval in place, take action, because we've got a couple of months before a lot of the herd are flooding back in and we will see that take place. That's all for this episode.

Speaker 1: 10:23

Just wanted to really break down the predictions of the big four, what we believe the RBA is going to do and what's out there at the moment. We're hoping for a rate reduction in February. It's a couple of months away at most. Whether it's February, the end of March or in May, based on the RBA's catch-ups, it's very close. Positive news as a property investor, as an owner occupied, holding debt, you're going to see some improvement in that cash flow, which is awesome. Thanks for listening. Hope to see some improvement in that cash flow, which is awesome. Thanks for listening. Hope you saw some value in this and we'll see you on the next episode. Bye for now.