The official interest rate has been paused again, despite growing political pressure on the Reserve Bank of Australia to start lowering the cash rate from a 12-year high.
In Tuesday’s decision, the sixth of the year, the RBA held rates again at 4.35 per cent, as it has been since the most recent hike last November.
The Reserve Bank board said while inflation had fallen since its peak in 2022, it still remained above the target range.
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“Headline inflation is expected to fall further temporarily as a result of federal and state cost-of-living relief,” it said.
“However, our current forecasts do not see inflation returning sustainably to target until 2026.”
The board added its policy would need to be “sufficiently restrictive” until the bank is confident inflation is moving sustainably towards the target range.
“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” it said.
The economic outlook remains uncertain, however, the board said.
“Some central banks have eased policy, although they note that they are removing only some restrictiveness and remain alert to risks on both sides, namely weaker labour markets and stronger inflation,” it said.
When questioned on rate cuts in the future, RBA Governor Michele Bullock said the board has not changed its view.
“Having said that, the message clearly from the board is that in the near term it does not see interest rate cuts,” she said.
Treasurer Jim Chalmers said Tuesday’s decision was the “expected outcome”, noting that next time the board meets it will have been a year since interest rates last went up.
“This reflects the progress that we’ve made when it comes to getting inflation down,” he said on Tuesday afternoon.
“When we came to office, inflation was 6.1 per cent, it’s now half of its peak a couple of years ago and our policies are helping in the fight against inflation.”
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Australia has made “very substantial progress” in getting on top of this inflation challenge, Chalmers added, without “ignoring the risks to growth in the economy”.
“We’ve seen growth in our economy has been quite weak … we’ve seen consumption has been weak, discretionary spending has been going backwards,” he said.
“All of this indicates that the interest rate rises already in the system are combining with international uncertainty and persistent inflation to slow our economy quite substantially.
“The government remains primarily focused on the fight against inflation, but is not ignoring those risks to growth.
“At the same time, we have the same objective as the Reserve Bank when it comes to the fight against inflation.
“So, we’ve made welcome and encouraging progress, and we’ll learn more about that tomorrow when the monthly inflation data is released, whether that monthly inflation data is in the low threes or the high twos, it will show that inflation has halved since we came to office.”
Ray White Group chief economist Nerida Conisbee described the RBA’s decision as “a difficult balancing act”.
“Inflation is still a bit too high, but we are now seeing signs of weakness in the economy,” she said.
“We are not in recession but have now seen three quarters of almost zero growth. Unemployment is creeping up and now sits at 4.2 per cent.
“Cost-of-living pressures have now led to record level participation rates.”
Conisbee said next year was “looking far more positive for mortgage holders”.
“Markets are currently pricing in four cuts for 2025 and another in early 2026,” she said.
“In response, mortgage providers are now cutting fixed rate home loans on average by 0.23 per cent.
“Not surprisingly, given the outlook for rate cuts, take up has been very low, with consumers likely mindful of significant cuts to come.”
A substantial number of experts forecast the rates to remain unchanged ahead of the board’s meeting.
After the US Federal Reserve slashed its key interest rate by half a percentage point, the RBA has increasingly come under pressure to bring forward its plans for relief.
