RBA remains on hold as expected
The RBA kept the official cash rate steady at 4.35% today, noting that it did not expect inflation to return sustainably to the target range till 2026.
The RBA said in its update following today’s board meeting that ‘the central forecasts published in August were for underlying inflation to return to the target range of 2–3 per cent late in 2025 and approach the midpoint in 2026.
‘Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,’ said the RBA today.
RBA governor Michele Bullock hasn’t publicly expressed much interest (pun intended) in dropping rates – in the short term, at least.
Perhaps no surprise that the cash rate remains steady at 4.35%, where it has been since late last year.
‘The most recent projections in the August SMP show that it will be some time yet before inflation is sustainably in the target range,’ added the RBA.
‘Data since then have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.’
Clearly Governor Bullock believes controlling inflation is more of a priority right now.
She’s also been criticised by Federal Treasurer Jim Chalmers who’s used the line ‘smashing the economy’ in relation to continued higher interest rates.
However, there is growing speculation that rates might decrease in early 2025 as inflation is expected to ease. After all, the RBA’s forecasts aren’t always correct.
The ASX’s RBA target rate tracker indicates financial markets had been tipping four cuts to the official cash rate from February to August 2025, bringing rates down to 3.25%.
Similarly, economist Saul Eslake believes that the RBA will maintain current interest rates throughout the remainder of 2024.
And he adds it is unlikely to initiate any cuts before February 2025, regardless of actions taken by other major central banks such as the US Federal Reserve, which dropped its rate last week.
For historical context, you have to go back to November 2011, when it was 4.5%, for a higher official cash rate.
Right now, though, Australia’s Central Bank remains circumspect when forecasting the future direction of rates.
‘While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high.’
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Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!