The Reserve Bank of Australia (RBA) has decided to hold the cash rate at 4.35% for the seventh consecutive time, following its board meeting on Tuesday. The decision comes amid ongoing concerns about inflation, which the RBA said remains “too high” despite some signs of easing.
This widely expected move leaves homeowners facing the 13-year high cash rate at least until November 5, when the next RBA board meeting is scheduled.
The central bank acknowledged in a statement that inflation had “fallen substantially,” but it still exceeds the target range of 2-3%.
The board reiterated the possibility of future rate hikes, stating that monetary policy would need to remain “sufficiently restrictive” until inflation moves sustainably towards the target range. “The board is not ruling anything in or out,” the RBA said, noting the “high level of uncertainty” surrounding future rate decisions due to global risks and geopolitical tensions.
While central banks in other countries, such as the US Federal Reserve, have begun cutting rates, the RBA remains cautious. RBA Governor Michele Bullock said the board would not lower rates until they were confident that underlying inflation had dropped, adding that the board remains vigilant to any upside risks.
Bullock also warned that Wednesday’s monthly inflation update might show a drop in headline inflation to 2.7%, but this figure could be volatile and may not reflect the underlying inflationary pressures.
Asked why Australia was lagging behind other countries in cutting rates, Bullock pointed out differences in domestic conditions, including a resilient labour market and a lower peak in interest rates. Australia’s unemployment rate currently stands at 4.2%, and the labour market has not experienced the same deterioration seen in other countries.
Treasurer Jim Chalmers said the RBA’s decision not to raise rates further was a positive sign, reflecting progress in the fight against inflation. He pointed to Treasury forecasts that suggest a considerable drop in headline inflation in the upcoming data.
However, Chalmers remained cautious, stressing that economic growth had slowed due to the interest rate rises already in place. He declined to comment on whether he was disappointed by the lack of a rate cut, reaffirming that the RBA operates independently of government influence.
Shadow Treasurer Angus Taylor, on the other hand, criticised the pace of Australia’s inflation fight, stating that Australia is “at the back of the pack” compared to countries like the US and UK, which have already begun cutting rates.
The decision has had little impact on the markets, with the ASX 200 down slightly by 0.2% following the announcement. The Australian Stock Exchange’s RBA Target Rate Tracker also predicted minimal chances of a rate cut in the near term, with just a 10% chance of a reduction.
Despite inflation starting to ease, the RBA remains focused on returning it to the 2-3% target, a goal expected to take until late 2025, with the midpoint likely reached in 2026. Governor Bullock acknowledged that progress on reducing inflation has been slow but remains committed to the bank’s strategy.
Three of the big four banks – Westpac, NAB, and ANZ – have forecast that rates will remain at 4.35% until early 2025, with cuts expected in February. Meanwhile, CBA is the outlier, predicting the first rate cut could come as early as December, with the cash rate potentially dropping to 3.1%.
The decision to keep rates steady came after a significant move by the US Federal Reserve last week, which slashed its interest rate by 50 basis points. Despite global trends, the RBA’s focus remains firmly on managing domestic inflation, with no rate cuts expected until there is clear evidence of sustained improvement.
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