‘Sighs of relief’: RBA gives borrowers a Christmas reprieve

The Reserve Bank has delivered an early Christmas present to borrowers, holding the official cash rate at 4.35 per cent at its last board meeting of the year, but warned this may not be the end of interest rate rises.

Economists said borrowers should brace for more rate rises next year, even as they cautioned there was a risk further tightening could tip the country into a recession.

The bank has lifted official interest rates by 1.25 percentage points this year to rein in stubbornly high inflation.Credit: Reuters

Treasurer Jim Chalmers said Tuesday’s pause was good news for households struggling with cost-of-living pressures.

“The last thing that people needed at Christmastime was another rate rise, and so I think this decision today from the Reserve Bank will be met with sighs of relief right around Australia,” he said.

RBA governor Michele Bullock said inflation was continuing to ease in line with expectations and the board wanted time to monitor the impact of previous rate rises.

The bank has lifted official interest rates by 1.25 percentage points this year to rein in stubbornly high inflation, adding almost $500 a month to the repayments on a $600,000 mortgage.

“Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labour market,” Bullock said in a statement.

Monthly inflation fell sharply through October, to 4.9 per cent from 5.6 per cent in September, but is still well above the RBA’s 2-3 per cent target range.

Bullock said the need for further rate rises would depend on future data. The RBA board next meets in February.

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

Westpac chief economist Luci Ellis, who was previously an RBA assistant governor, said any inflation surprises early next year would be met with a rate rise from the RBA board.

“If inflation does not decline as the RBA intends, the board will respond with increased rates. But this is not the most likely outcome,” she said.

AMP chief economist Shane Oliver said his firm believed the RBA had already lifted rates too high, but there was still a 40 per cent chance it would raise them again in February after it received inflation and jobs data.

“Continuing to raise interest rates will only add to the already very high risk of recession, particularly given the uncertainty around the long and variable lags with which rate hikes impact the economy, meaning that there is a big impact yet to fully show up,” he said.

Financial markets and economists expect the central bank to wait until the end of 2024 to begin cutting interest rates.

Nomura senior economist Andrew Ticehurst believes the RBA has finished with rate rises and expects it to turn its mind to cuts by the middle of next year.

“We continue to forecast three rate cuts – pencilled in for 2024, in August, September and November – returning the cash rate to a roughly neutral level of 3.6 per cent by late 2024,” he said.

A cash rate of 3.6 per cent would reduce repayments on a $600,000 mortgage by almost $300 a month.

Chalmers said the economy was making “welcome and encouraging progress in the fight against inflation”, but acknowledged many households were doing it tough.

He said the government’s targeted cost-of-living relief as well as saving most of last financial year’s budget surplus had helped.

Shadow treasurer Angus Taylor said hard-working families were still struggling, with real wages going backwards and two quarters of per-person economic growth in the negative.

“So from the point of view of a typical Australian household, that means they are seeing a recession; that is what they are seeing in GDP per capita. This will be a grim Christmas for many Australians,” he said.

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