Australian housing crisis: How the latest inflation figures are very bad news for Aussie borrowers – and here’s why you should be concerned

Australian home borrowers could miss out on a rate cut in 2024 and even face another rate hike next year, financial markets fear.

Prices on interest rates on the futures markets changed dramatically on Wednesday after new inflation data showed the consumer price index rose in March.

The 30-day interbank futures market went from pricing in at least two rate cuts in late 2024 to no rate cuts at all this year, with the Reserve Bank of Australia putting cash rates on hold.

Earlier this month, the futures market priced several interest rate cuts at the end of 2024.

But now the futures market expects cash rates to remain at a 12-year high of 4.35 percent, with no relief in sight soon after 13 rate hikes in 18 months.

The Australian bond market is now also pricing in another possible rate hike, with the yield on two-year Commonwealth government bonds rising 12 basis points to 4.2 percent on Wednesday.

Rising yields mean investors want greater returns for buying government bonds and are a reflection of market prices for interest rates.

A yield is the annual return that an investor receives for holding a government bond.

A related coupon rate of 4.2 percent means that someone who bought the security for $1,000 would get $42 back annually until a certain date when the bond matures.

That is when the investor is paid back what he has lent to the government by purchasing the bond.

A 4.2 percent yield on Australian government bonds suggests the Reserve Bank is unlikely to cut rates by a quarter of a percentage point to 4.1 percent over the next two years.

A further rise in yields on two-year bonds above 4.35 percent could signal another possible rate hike.

Hopes for a rate cut were dashed on Wednesday when the Australian Bureau of Statistics revealed on Wednesday that inflation had risen to 3.5 per cent in March, up from 3.4 per cent in February.

However, the quarterly measure of headline inflation showed some moderation, with the CPI rising 3.6 percent – up from 4.1 percent in December – but higher than market forecasts of a 3.5 percent increase.

Pricing on interest rates on the futures market changed dramatically on Wednesday after new inflation data showed the consumer price index rose in March (pictured is an auction in Sydney)

The 30-day interbank futures market went from pricing at least two rate cuts in late 2024 to no rate cuts at all this year, with the Reserve Bank of Australia leaving spot rates on hold

An underlying inflation measure known as the weighted median showed alarming annual price increases of 4.4 percent, based on goods and services, with prices rising at the middle of the range.

The Australian Bureau of Statistics calculates price increases based on the analysis of a basket of goods.

The truncated average measure, which averaged out the largest price increases and decreases, produced an annual inflation rate of 4 percent – ​​proving that the battle against inflation is far from over.

Shortly before Christmas, the Commonwealth Bank predicted six rate cuts in 2024 and 2025, starting in September 2024.

But Australia’s largest housing lender is now revising that forecast.

“An upside surprise to inflation means the risk now comes with a later start to the RBA’s rate cut cycle,” Commonwealth Bank chief economist Stephen Halmarick said.

On Wednesday, Westpac chief economist Luci Ellis, a former assistant governor of the Reserve Bank, predicted the RBA would delay the rate cut until November, compared with its previous forecast in September.

Earlier this month, the futures market priced several interest rate cuts at the end of 2024