Sunita Somvanshi
Australia’s recent economic growth has surprised analysts, potentially limiting further interest rate cuts for homeowners hoping for mortgage relief. The Reserve Bank of Australia (RBA) has signaled that stronger-than-expected consumer spending could halt its rate-cutting cycle sooner than anticipated.
Australia’s economy grew by 0.6% in the June quarter and 1.8% over the year, slightly beating forecasts. This growth was largely driven by a significant jump in household spending, which increased by 0.9% for the quarter – more than double the 0.4% rise seen in the previous three months.
RBA Governor Michele Bullock acknowledged this economic strength during a speech in Perth: “We’re seeing the private sector start to demonstrate a little bit more growth now, which I think is positive. But what it means for future interest rates, I don’t know.”
Bullock added a cautionary note for mortgage holders: “If anything, it’s probably a little stronger than we thought it would be. That’s good, but it does mean that it’s possible that if it keeps going, then there may not be many interest rate declines left to come.”
This warning comes after the RBA cut the cash rate to 3.60% in August, its third reduction this year after holding rates at a 13-year high of 4.35% for 15 months.
The latest economic data revealed that discretionary (non-essential) spending rose 1.4% in the June quarter, nearly three times the 0.5% increase in essential spending. Tom Lay from the Australian Bureau of Statistics explained that “end of financial year sales, new product releases, and holiday spending around the Easter-Anzac Day period” contributed to this consumer confidence.
At the same time, the household savings ratio fell to 4.2%, indicating Australians are dipping into their savings to fund increased spending.
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ANZ Bank issued what it called a “bombshell” warning on Friday, stating that while a November rate cut remains “more likely than not,” the GDP figures “increase the chances of there being no rate cut in November or, indeed, at all, from here.”
The bank noted that “if evidence of consumer spending momentum continues and weakness does not emerge in the CPI or labour market data, the RBA may assess the cash rate as broadly neutral with no further cuts needed.”
Housing market strength is adding to these concerns, with capital city home prices rising 0.8% in August – the largest monthly increase since May 2024.
Not all economists believe the slightly stronger growth will change the RBA’s plans. AMP’s chief economist Shane Oliver described the GDP figure as a “minor surprise,” noting that while consumer spending was stronger than expected, it was “partly balanced by pretty soft investment numbers.”
Independent economist Saul Eslake agrees the difference isn’t “big enough” for the RBA to alter course dramatically. “Yesterday’s data will have reinforced their view that there’s no urgency about cutting rates. You can still expect a rate cut in November, but there’s no reason to expect one at the next meeting in September.”
Most major banks still expect at least one more 0.25% rate cut in November, and some forecast further easing into early 2026, though timing varies.
The RBA’s next meeting is scheduled for September 29-30, with most analysts expecting rates to remain on hold until at least November.
