The Reserve Bank has announced that the official cash rate will remain steady at 4.35%, unchanged since November 2023. The decision reflects the board’s cautious approach, as they wait for clearer signs of easing inflation before considering any adjustments.
“While headline inflation has dropped significantly and is expected to stay lower for a while, underlying inflation remains too high and continues to reflect persistent inflationary momentum,” the board stated. Recent data on inflation and economic trends align with these expectations, giving the board some confidence that inflation is gradually moving towards their target.
There’s speculation that interest rates could begin to decrease as early as February, offering a glimmer of hope. However, nothing is certain. Recent years have shown us that economic conditions can shift unexpectedly, so it’s wise to remain prepared for all outcomes. The Reserve Bank also highlighted that with unemployment currently below their estimate of full employment, they’ll need to see more slack in the labour market before deciding to cut rates.
The RBA’s first meeting of 2025 is scheduled for February 17–18. While the decision will depend on the latest economic data, the outcome remains uncertain for now.
What does this mean for you?
With the uncertainty of the upcoming year, it’s wise to plan for the possibility that current interest rates will stick around for a while. To stay on top of your finances, it’s best to budget with higher rates in mind rather than hoping for a sudden drop. Here’s how you can prepare:
Step 1: Assess your financial situation
As the new year approaches, take this opportunity to thoroughly review your finances. Start by making a list of all your expenses, income, and any outstanding debts. Be honest and realistic—this is the foundation for building a strong financial plan.
Step 2: Create a practical budget
With a clear picture of your finances, you can identify areas where you might be overspending and opportunities to save. Build a budget based on the current economic conditions, not on the hope that inflation or rates will decrease soon. Prioritise your spending by distinguishing between essentials and non-essentials. This ensures your budget is both sustainable and aligned with your financial goals.
Step 3: Explore Ways to Boost Your Income
While increasing your income may not be simple, it’s worth exploring your options. Consider having a conversation with your employer about a potential raise or additional hours. If you’re saving for a specific goal, taking on a part-time job or starting a side hustle might be a practical short-term solution to bring in extra money.
Step 4: Monitor and adjust regularly
Your financial situation can change throughout the year, so it’s important to keep track of your budget monthly. Review your expenses, income, and savings regularly, and adjust as needed to stay on track.
By staying proactive and budgeting with current rates in mind, you’ll be better prepared to navigate whatever the new year brings.
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