Mortgage holders brace as spending boom threatens rate increases

Cash-strapped mortgage holders face the shallowest rate cutting cycle of the past three decades, as strong consumer spending could force interest rates higher.

In a cryptic pre-Christmas warning, the Reserve Bank of Australia would not confirm if interest rates would rise on a spending boom.

During a post-meeting press conference — when the board left the cash rate at 3.60 per cent for the third straight meeting – governor Michele Bullock was asked if Australians should “tread carefully” when it comes to spending over the festive period.

“I’m not telling consumers what to do,” she said.

“But we do get it is very difficult to read some of these numbers, particularly with Black Friday sales.”

Ms Bullock was also pressed whether big spending events such as Oasis, Metallica, Lady Gaga, Kendrick Lamar and the Ashes all occurring in the final three-month period would add to inflation.

“Well, these things – people often put a lot of emphasis on big events,” she said.

“I think it’s also true though that people who are going to these big events are often sacrificing other things to go to these big events.

“So if they’re going to spend that much money on an Oasis concert and accommodation and that sort of thing they might be foregoing some coffees or a breakfast out or they’ll be doing different things.”

While the central bank has repeatedly told mortgage holders they will be data dependent, Ms Bullock warned strong private demand meant the economy was close to full capacity.

An economy running at full capacity was likely to lift inflation, which could lead to higher interest rates.

When asked if the bank considered either cutting or hiking interest rates in December, Ms Bullock said: “We didn’t consider the case for a rate cut at all and we didn’t explicitly consider the case for a rate rise at this meeting.”

“But we did consider and discuss quite a lot of the circumstances and what might need to happen if we were to decideinterest rates had to rise again next year,” she added.

Should the RBA lift interest rates at its first meeting in February, it will be the shortest and shallowest rate cutting cycle in the bank’s 30-year history after slashing interest rates in February, May and August.

In total, interest rates have fallen from 4.35 to 3.60 per cent.

Aussies finding more ways to spend

Meanwhile, Australians’ spending is on the rise again in November, with the CommBank Household Spending Insights showing another positive monthly gain.

In November, spending lifted by 0.5 per cent, following a 0.6 per cent increase in October.

Commonwealth Bank says a combination of the Ashes cricket, a Matildas game as well as high profile concerts by Oasis, Metallica and ACDC and the release of Wicked: For Good all contributed to spending growth in the month.

Commonwealth Bank head of Australian economics Belinda Allen says there has been a shift in consumer spending in recent years.

“Over the course of 2022-2024 the pattern was people would sacrifice (ahead of big purchase items) with the cost of living,” Ms Allen said.

“(But) 2025 has looked very different — we’ve seen very consistent spending growth as we haven’t seen strong months and then weak months in spending patterns.”

According to Ms Allen, a combination of tax cuts, a strong labour market and three interest rate cuts had all contributed to households improving their financial position.

“What we’ve seen each month is consumers make different choices around what they will spend on, so this month it was concerts, the last couple of months it was communications and digital and prior to that it was eating and drinking out,” Ms Allen said.

“It's the fact that they can spend now that is important not what they’re spending on.”

Will rates rise in February?

Money markets have shifted their expectations from an interest-rate cut in early 2026, through to two hikes by the end of the year.

It comes as Australia’s inflation rate reversed course and started to lift over the past few months.

The Australian Bureau of Statistics data shows the inflation rate for October remains unchanged at zero per cent.

However, due to the -0.2 per cent figure in October last year, Australia’s yearly inflation rate has now jumped to 3.8 per cent.

NED-9108-Monthly-Inflation-Indicator

Meanwhile, the all-important trimmed mean inflation rate – which the RBA measures as it excludes volatile items such as fuel – rose to 3.3 per cent for the year.

VanEck head of investments capital markets Russel Chesler says the next interest rate move is likely to be a hike, but believes February is likely too soon.

“The reality is that inflation has crept up on us in the last few months, with the headline inflation number a lot closer to four per cent than we’re comfortable with,” he said.

“While mortgage holders will be disappointed that their monthly repayments won’t be coming down – and could, in fact, head in the other direction, the bigger picture is that this is a small price to pay for higher goods and services costs in the future.”

He told NewsWire the RBA would remain data-dependent, but conceded an inflation figure above four per cent could scare the central bank, particularly if it was due to the “sticker” services inflation.

BDO chief economist Anders Magnusson says the February meeting is “live” with critical economic data to be released between Christmas and the next RBA rate meeting.

“A key risk lies in the wealth effect from house prices,” he said.

“Government incentives for buyers and pressure to accelerate new housing construction are pushing up property prices, adding wealth and spending power to existing homeowners.

“That dynamic could fuel consumption at a time when the RBA is trying to keep demand contained.”

Commonwealth Bank has bucked the trend and expects interest rates to remain on hold until the end of 2026.