Bendigo Bank, one of Australia's largest regional lenders, expects the Reserve Bank of Australia (RBA) to leave its official cash rate unchanged at 4.6% through November and December. In a research note released Friday, the bank said inflation is easing only gradually, giving the central bank little reason to cut rates anytime soon.
Why the RBA is expected to hold
The RBA has been on a tightening cycle to bring inflation back to its 2–3% target range. While price pressures have moderated from their peaks, progress has been slower than many hoped. Bendigo's economists argue that the RBA will want to see more convincing evidence that inflation is sustainably cooling before it begins to lower borrowing costs.
This cautious stance mirrors the approach of other central banks. For instance, the Federal Reserve has signaled rates may stay higher for longer, and Sweden's Riksbank has hinted at a possible November rate hike as inflation remains sticky. The global picture is one of central banks reluctant to ease policy prematurely.
Consumer confidence takes a hit
Bendigo's October survey found that consumer confidence fell 5% from September and was more than 12% lower than a year earlier. That decline reflects the ongoing strain of higher borrowing costs on household budgets. With mortgage repayments and rents eating up a larger share of income, many Australians are feeling less optimistic about their financial situation.
The lender also pointed to mixed signals in the broader economy. Consumer spending has been flat, and transport costs have risen after temporary disruptions. These factors add to the sense that the economy is slowing, but not collapsing, which complicates the RBA's decision-making.
What this means for borrowers and savers
For homeowners with variable-rate mortgages, a prolonged hold at 4.6% means their monthly repayments will stay at current levels for at least the next couple of months. That provides some certainty, but it also means relief from rate cuts is unlikely before 2025.
Savers, on the other hand, may continue to enjoy relatively attractive deposit rates. Banks often pass on higher cash rates to savers to attract deposits, and with the cash rate expected to stay elevated, term deposit rates could remain competitive.
Investor implications
For investors, the prospect of rates staying higher for longer has several knock-on effects. Interest-rate-sensitive sectors, such as real estate investment trusts (REITs) and utilities, tend to underperform when rates are high, as their dividend yields become less attractive relative to bonds. Conversely, banks often benefit from a stable rate environment, as their net interest margins remain healthy.
The Australian dollar could also be supported by relatively high interest rates, which attract foreign capital seeking yield. That could weigh on exporters, whose goods become more expensive overseas.
Bendigo's view aligns with the broader market consensus that the RBA is likely to remain on hold for the rest of the year. However, the bank's note highlights the fragility of consumer sentiment, which could prompt the RBA to act sooner if spending deteriorates sharply.
What to watch next
Investors will be closely watching upcoming inflation data and the RBA's commentary at its next policy meeting. Any signs that inflation is falling faster than expected could shift expectations toward an earlier rate cut. Conversely, if inflation proves stubborn, the RBA may be forced to consider further hikes, though that seems less likely given the weakening consumer backdrop.
Bendigo's forecast is just one voice in a crowded field of economists, but its focus on consumer confidence adds a useful data point. As the holiday season approaches, retailers and small businesses will be hoping that households aren't too pessimistic to spend.
For now, the message from Bendigo is clear: don't expect the RBA to move the needle on rates until there's solid proof that inflation is under control. That means borrowers should plan for stable repayments, and investors should position for a world where rates stay higher for longer.
