Bullock keeps cash rate on hold, but refuses to rule out further rate hikes

The RBA has kept interest rates on hold, but won’t rule out further increases to the cash rate.

Reserve Bank governor Michele Bullock has warned that interest rates may have to be hiked higher still, even as she acknowledged households were “hurting” under the impact of tighter monetary policy.

In its first decision of 2024, the RBA kept the rates steady at 4.35 per cent, noting that despite recent progress on lowering inflation, it remained too high for the central bank to ease interest rates.

The RBA was almost universally expected to keep the cash rate steady following softer-than-expected CPI figures that showed inflation eased to just 4.1 per cent in the year to December.

RBA governor Michele Bullock addresses the media after Tuesday’s rate decision. Picture: NCA NewsWire / Dylan Coker

Speaking at the post-meeting press conference, governor Bullock said the board was not “ruling anything in or out” – including additional rate hikes.

“I really understand that the mortgage holders are sweating on this — I do understand that,” she said.

“But the big issue that’s confronting not just mortgage holders, but everyone, is inflation.”

In the statement accompanying the decision, the board said it expected it would be “some time yet” before inflation is was sustainably inside the central banks 2 to 3 per cent target range.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out,” the statement read.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

The Reserve Bank has kept the cash rate on hold at 4.35 per cent for the second meeting in a row. Picture: Supplied

Following the cash rate decision, bond traders trimmed their bets of interest rate cuts to ascribe a 42 per cent chance of a cut in June, down from 53 per cent before the rate hold.

Markets are fully priced for a cut in September.

Tuesday’s cash rate call marks a new era for the RBA, which will now hold eight, two-day board meetings a year, simultaneously release fresh forecasts alongside the decision and hold a post-meeting press conference.

The changes follow an independent review of the central bank that recommended a suite of measures designed to improve the bank’s communications and internal deliberations.

RBA releases fresh economic forecasts

The RBA’s warning of further rate pain came as it released fresh forecasts which slashed its near-term inflation projections.

To the relief of households, headline inflation is now expected to decline a little quicker than previously thought, easing to just 3.3 per cent by mid-year – a significant reduction from the RBA’s September projections of 3.9 per cent.

However, price pressures for services, such as hairdressing, pet grooming and going to the dentist, will be far stickier, which the RBA expects will ease much more gradually than goods.

“While there have been favourable signs on goods price inflation abroad, services price inflation has remained persistent and the same could occur in Australia,” the post-meeting statement read.

In the second half of 2025, inflation will return to the RBA’s 2 to 3 per cent target band, easing to 2.8 per cent by December, it forecasts.

Even as updated projections showed the jobs market would remain “robust”, the unemployment rate will rise to 4.4 per cent, up from its current rate of 3.9 per cent.

Meanwhile, pay packets are expected to grow slightly faster in the near-term, rising by 4.1 per cent in first half of 2024, with workers set to enjoy real wages growth over the next couple of years.

Originally published as Bullock keeps cash rate on hold, but refuses to rule out further rate hikes