Australian home borrowers have been dealt a severe blow just before Christmas with the Reserve Bank denying them a rate cut.
The cash rate on Tuesday afternoon remained at 4.35 per cent, which is now higher than the equivalent policy rates in New Zealand and Canada as other first-world nations get relief.
Governor Michele Bullock gave a strong hint rate cuts could be months away with inflation still too high.
‘The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,’ the Reserve Bank said.
The word ‘inflation’ had 22 mentions in the RBA’s monetary policy decision statement.
The RBA left the cash rate on hold at its last board meeting for 2024 but stressed the underlying inflation rate of 3.5 per cent was still too high and well above its 2 to 3 per cent target.
‘While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,’ it said.
Headline inflation is at a three-low low of 2.8 per cent but the RBA is expecting it to surge to 3.7 per cent in late 2025 after the federal government’s $300 electricity rebates expire mid-year.
Australian home borrowers have been dealt a severe blow just before Christmas with the Reserve Bank denying them a rate cut (pictured is a Sydney shopper)
Relief from the RBA’s 13 increases in 2022 and 2023 is also being delayed despite Australia’s economy growing by just 0.8 per cent in the year to September – the slowest growth since the 1991 recession outside of a pandemic.
Westpac, NAB and ANZ don’t see a rate cut occurring until May next year, when an election must be held.
But the volatile futures market is now pricing in three rate cuts in 2025 which would it back to 3.6 per cent for the first time since May 2023.
The RBA has this month removed the phrase out ‘not ruling anything in or out’ – in a sign another rate rise was now off the table as inflation continues to moderate.
‘The board is gaining some confidence that inflation is moving sustainably towards target,’ it said.
‘While the level of aggregate demand still appears to be above the economy’s supply capacity, that gap continues to close.’
Vanguard senior economist Grant Feng said the RBA was still concerned about weak productivity adding to inflationary pressures, as businesses passed on higher costs on to consumers.
‘Although sluggish productivity growth is not a new challenge for the Australian economy, the sharp fall is particularly worrisome for the inflation outlook,’ he said.
Governor Michele Bullock gave a strong hint rate cuts could be months away with inflation still too high
The Reserve Bank noted global uncertainty could fuel global inflationary pressures, with Donald Trump taking over as American president on January 20 with a plan to impose broad 10 to 20 per cent import tariffs on goods coming into the United States.
‘There remains a high level of uncertainty about the outlook abroad,’ it said.
‘Geopolitical uncertainties remain pronounced.’
The Bank of Canada has this year cut rates four times, taking its policy rate down to 3.75 per cent or 60 basis below Australia’s equivalent of 4.35 per cent.
The Reserve Bank of New Zealand has cut rates three times to 4.25, moving as recently as November.
The RBA noted it was keeping rates on hold as other central banks like the U.S., UK and European Union provided relief.
‘Most central banks have eased monetary policy as they become more confident that inflation is moving sustainably back towards their respective targets,’ it said.
‘They note, however, that they are removing only some restrictiveness and remain alert to risks in both directions, namely weaker labour markets and stronger inflation.’
The RBA also noted wage growth had moderated as labour productivity remained weak.
The RBA isn’t meeting again until February 17 and 18 under changes that will see it meet eight times a year instead of 11 previously.
Treasurer Jim Chalmers will retain his power to overrule the independent Reserve Bank board, as part of a political deal with the Greens to keep a veto that has never been used since the RBA was created in 1959.
Ms Bullock is addressing the media at 3.30pm Sydney time.
