Property and the budget ease pressure on the RBA as two banks cut fixed rates

The older you get, the more frenetic the pace of life seems to become. 

No matter where you look, social, political and economic change appears to be in overdrive, and the long periods of stability we once enjoyed are becoming increasingly short-lived.

Just look at the Reserve Bank.

Last year, Australia looked to be on the verge of a slowdown, which was only to be expected after one of the fastest rate hike cycles in history, prompting the RBA to shave a couple of rate hikes off the top.

But after it had cut for the third time, inflation again reared its ugly head and the RBA was forced into a sudden about-turn in 2026.

Three rate increases came in quick succession, along with warnings that more were possible.

If there is one thing central bankers try to avoid, it is being forced to suddenly reverse course.

But it's possible the cycle once again is turning.

Late last week, Macquarie and ANZ both cut their fixed rates on home loans.

That is usually a good indicator that they believe the cycle has peaked and interest rates are likely to be lower down the track.

Macquarie, which has been aggressively chasing market share, cut its three-year fixed loan by 0.5 percentage points, while ANZ clipped its two-year loan rate by 0.1 percentage points.

The reductions represent a dramatic about-face after more than 80 lenders spent the first few months of this year pushing through interest rate increases.

They also stand in stark contrast to fixed-rate hikes by both NAB and Westpac in the past 10 days.

He says, she says

Confusion seems to reign supreme when it comes to the outlook for local interest rates.

While futures markets are still predicting one more move higher to 4.6 per cent, money markets have been quietly reversing course.

The yield on two-year Australian government bonds has dropped in recent weeks, which has clouded what until a fortnight ago was a near-unanimous expectation of higher rates for longer.

Even the economists are at odds with each other.

Commonwealth Bank's team has now officially declared the end of the rate-hiking cycle with two cuts scheduled for next year, while ANZ reckons the RBA is done and will sit on its hands for a while.

At the other end of the scale, Westpac is betting on two more rate increases, with NAB tipping one.

It's rare to see such a huge divergence in opinion when it comes to something as fundamental as interest rates.

Economists and analysts often argue about timing and there's always a couple of outliers with their predictions, but such a split in direction is unusual.

The case for pushing rates higher revolves around inflation. Even after a decrease last month, it remains a problem that seems likely to persist for some time, particularly given the events in the Middle East.

What was supposed to be a brief conflict designed to overthrow the Iranian hierarchy has instead delivered Iran control of global energy supply and prices.

Most oil analysts are perplexed as to why oil remains below $US100 a barrel and believe the full impact of fuel shortages are yet to be felt, pushing living costs even higher.

Property downturn a blessing for RBA

The federal budget has had an unexpected impact on our inflation outlook.

Property markets, particularly in Sydney and Melbourne, were grinding lower even before the budget, along with a marked slowing in gains in the tearaway capitals of Perth and Brisbane.

Real estate is a powerful force in the Australian economy.

While the RBA's official stance is that it doesn't target asset prices such as housing and stocks, it is acutely aware of the impact on spending when either of those markets goes haywire.

When real estate starts to rocket, home owners feel wealthier and are more inclined to spend, thereby boosting growth and inflation. The same goes for shares.

When markets turn down, the opposite psychology kicks in.

The decision to wind back tax breaks on property investment has already resulted in a sharp reassessment of the profitability of our banks.

They've profited handsomely from the 400 per cent lift in property values in the past 25 years and the sudden pullback in the value of bank stocks in the past month is a key indication that the easy gains from real estate may have come to an end.

Along with real estate, banks have been amongst the biggest beacons for Australian investors, with the CBA constantly jockeying for top spot among our most valuable companies.

Given it is our biggest home lender, it is a graphic illustration of just how pervasive the property boom has been and the extent to which it has skewed investment decisions.

So far there's been an orderly wind-back in both property and stocks.

But the RBA will be keen to avoid doing anything that might accelerate those trends.

US and Europe chasing Australia

Down here in the land of Oz, we usually take our lead from offshore.

But for once, we've been something of a trendsetter.

Inflation is uncomfortably high in the US and after strong jobs numbers last Friday, Wall Street got a dose of the wobbles on speculation the US Fed would have little option except to raise interest rates.

That puts new Federal Reserve chairman Kevin Warsh, hand-picked by US President Donald Trump, in a difficult spot.

Before his outburst on NBC's Meet the Press over the weekend, when he walked off the set, Trump said Warsh could "do whatever he wants" before issuing a not-so-subtle warning.

"I don't want to have a big influence on him. But we had a great report. We're doing great, and it's unfair that whenever you do great, they want to raise interest rates," Trump said.

Meanwhile, the European Central Bank is likely to raise interest rates at its next meeting later this week, with another possible lift in a few months.

Before the Iran war, weak growth in the Eurozone had markets predicting cuts, but surging energy prices have sent Eurozone inflation soaring.

That's made a June 11 rate hike a near certainty even if the conflict is somehow suddenly resolved.

When the RBA board sits down next week, it won't be under the same type of pressures now confronting their contemporaries in the US and Europe.

After three rate hikes this year and with unemployment now tracking higher than forecasts, they can afford to sit still and await further developments.