'Wasn't an alternative': RBA's response to calls for rate relief

Concluding its two-day meeting this afternoon, the RBA board decided to keep interest rates on hold at 4.35 per cent, unchanged since November 2023.

While the central bank is coming under greater scrutiny after cuts overseas and comments by Treasurer Jim Chalmers that the current cash rate target is “smashing the economy”, Governor Michele Bullock said her board didn’t consider a cut or hike.

“We didn’t explicitly consider an interest rate rise at this meeting,” she said.

“The format of the meeting was slightly different. The way we framed the discussion really was around what had changed since August, and what would we need to see to go for either a raise in interest rates or a lowering in interest rates?

“So there wasn’t an explicit alternative in the sense that I’ve talked about in the past.”

Five days ago the US Federal Reserve cut its benchmark interest rate by an “unusually large” half-point last week, prompting many local pundits to call for the same measure to be taken locally.

But Bullock pointed out that rates in the United States went – and still are – considerably higher than in Australia.

“Economic circumstances here are a little different than they are overseas,” she said.

“New Zealand, Canada, for example, have seen quite sharp rises in their unemployment rates.

“The United States is a little different as well. Some of those countries are seeing inflation come down further than we are at the moment.

“The other point I would make is that most of those countries had official interest rates up around over 5 per cent.

“So in our judgement, we look at how restrictive some of those countries are relative to us. We’re restrictive, but we think they’re more restrictive than us.”

And while the RBA’s monetary policy statement once again reiterated its focus on bringing inflation back down to the 2-3 per cent target range, Bullock said she was mindful of the trying conditions many households are facing.

“We do recognise that there are people out there that are having to make some very, very difficult decisions,” she said, adding that “We only have one instrument”.

“It’s the interest rate. And I do understand that, distributionally, it affects people in different ways… although we can’t do anything about it with our interest rate policies because we only have one interest rate, we do understand.”

Thousands of borrowers have been anxiously awaiting a cut in interest rates, with many reporting that the prolonged exposure to a rate of 4.35 per cent is starting to eat into household savings.

Graham Cooke, head of consumer research at Finder, said many homeowners are juggling their finances with a view to seeing interest rates reduced in early 2025.

“Due to the sharp and rapid rise in mortgage repayments, millions of Aussies are under significant financial stress,” he said.

“A whopping 40 per cent of homeowners say they are struggling to pay their home loan in September, according to Finder’s Consumer Sentiment Tracker.”

Cooke said the erosion of borrower’s personal savings will likely see levels of personal debt soar.

“Less in savings means people are more likely to have to rely on credit cards, loans, and buy-now-pay-later products to get by,” he said.

“These products can be great if used properly, however they can quickly get out of hand if relied on for everyday expenses.”

Sally Tindall, director of data insights at Canstar, said scheduled monthly repayments have collectively increased by an estimated $5.5 billion compared to March 2022.

“It’s incredible to think Australian borrowers are having to shell out an extra $5.5 billion a month in mortgage repayments. What’s even more incredible is that most households are managing to make it work,” She said.

“Cash rate cuts will be music to borrowers’ ears but the RBA is unlikely to move any time soon.

“Underlying inflation is tracking in the right direction but the reality is, it’s still sitting firmly in the 3’s.

“With unemployment holding steady at 4.2 per cent, the RBA has cover to continue its ‘wait-and-see’ strategy to get the job done, and properly.”