RBA governor Michele Bullock refuses to rule out a rate rise

Homeowners desperate for some relief were left disappointed as the Reserve Bank of Australia held interest rates for the eighth time in a row.

Reserve Bank governor Michele Bullock can’t say when the RBA will cut the official interest rate, but said it would be “ready to act” when inflation was “sustainably” in the bank’s target range.

As expected, the RBA board on Tuesday kept the cash rate on hold at 4.35 per cent, where it has been since November last year.

While headline inflation for the September quarter was 2.8 per cent over the year – within the central bank’s target range of 2-3 per cent – this was largely thanks to government subsidies on energy and fuel.

The underlying inflation rate that the RBA watches was 3.5 per cent.

The central bank believes inflation will lift again after those government subsidies end in June 2025.

Ms Bullock said she would not “be drawn into another forward guidance”, but said the board would closely watch the data, as well as forward looking indicators from its own surveys.

“We will try to make sure that we’re tuned in enough that, if things start to turn down more than expected, that we’re ready to act,” she told reporters after the rate announcement.

“But we don’t know.”

The RBA did not explicitly consider an interest rate cut at this week’s board meeting, which puts into doubt predictions of a rate cut at the first meeting of 2025 on February 17-18.

Ms Bullock, however, acknowledged a weakening economy.

“It’s true that the economy is not growing, and we know that in per capita terms, it is declining and consumption per capita is declining,” she said.

“What’s keeping aggregate demand, even though it’s not growing very much, what’s keeping the level high is population growth.”

Ms Bullock flagged a weakening Australian economy, although refused to give timings of the next rate cut. Picture: NewsWire / Nikki Short

Treasurer Jim Chalmers agreed, saying Australia’s economy was especially weak per person.

“Inflation itself is an almost permanent feature of economies like ours, healthy economies like ours, but it has been too high for too long,” Mr Chalmers said.

“When we came to office, it had a six in front of it, it’s now got a two in front of it.

“Inflation is 2.8 per cent, which is the first time that it’s been in that 2 to 3 per cent range since 2021.

“And so what that tells us is we’ve made really good progress when it comes to official inflation, but we know that people are still battling with bills.”

The government is scheduled to hand down a budget in March next year, before a federal election is held by May.

Ms Bullock indicated the board would not move on the cash rate while demand was still above supply and the labour market was on “the tighter side”.

“Right now, we believe that settings are restrictive and we need to keep rates restrictive for the time being,” Ms Bullock said.

“The board needs to be confident that inflation is moving sustainably towards the target and we need to see more progress on underlying inflation coming down.

“We’re watching the data closely and we’re not ruling anything in or out.”

The RBA said in its statement that inflation remained too high, despite falling by nearly one percentage point over the last 12 months.

“Headline inflation was 2.8 per cent over the year to the September quarter, down from 3.8 per cent over the year to the June quarter,” the board said in a statement.

“This was as expected due to declines in fuel and electricity prices in the September quarter. But part of this decline reflects temporary cost of living relief.”

The board said underlying inflation (as represented by the trimmed mean) was 3.5 per cent over the year to the September quarter.

“This was as forecast but is still some way from the 2.5 per cent midpoint of the inflation target,” the board said.

RBA governor Michele Bullock says inflation is still too high for the board to cut the official cash rate. Picture: NewsWire / Nikki Short

The central bank warned it would be “some time yet” before inflation is “sustainably” in the target range.

“This reinforces the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range.”

Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, said Tuesday’s decision suggested while rate hikes were “well and truly off the table”, Australians may need to wait longer for a rate cut.

“Rate hikes appear to be well and truly off the table – it has now been a year since the last rate hike,” he said.

“The RBA is playing a patient game of waiting for output to come back to the economy’s potential.

“This means the recent run of very weak growth is likely to continue, notwithstanding the nascent signs of a pick-up in consumption growth.

“We still expect to see the first rate cut in Q2 of 2025, but the balance of risks around this are shifting toward the first easing coming later, rather than sooner.”

The eighth consecutive hold was widely tipped by economists and investors and now means the RBA has not moved on rates for a full 12 months.

Prior to the announcement Finder surveyed 38 economists and experts who all predicted the cash rate would remain unchanged after Tuesday’s meeting.

Independent economist Saul Eslake said he believed Australia’s interest rates will remain on hold until February 2025 at the earliest, despite other advanced economies slashing rates.

“Just because other central banks are cutting rates, doesn’t mean the RBA has to,” Mr Eslake told NewsWire.

“Especially when you consider the RBA never raised rates as much as the US, Canada, the UK and New Zealand.

He said Australia’s economic backdrop remains resilient, with the nation’s unemployment rate holding at 4.1 per cent.

Michele Bullock held the official cash rate on Tuesday at 4.35 per cent. Picture: NewsWire / Nikki Short

“Unemployment also hasn’t risen as much. And unlike the rest, Australians are getting tax cuts that are in aggregate are the equivalent of 25 basis point rate cuts in interest rates, albeit distributed differently to households,” he said.

Mr Eslake said he expects the RBA to wait and see if households are spending or saving the tax cuts before making a decision on interest rates.

“We won’t get much idea of the extent to which households have saved their tax cuts until the September national accounts are released on the first Wednesday in December,” he said.

Originally published as RBA governor Michele Bullock refuses to rule out a rate rise