Mortgage relief unclear as Reserve Bank keeps cash rate steady

The Reserve Bank’s cash rate decision was expected, but what happens next remains uncertain, economists say.

Up or down? The RBA is cagey, but financial markets say “down”. Picture: iStock

Anyone hoping for a pre-Christmas home loan interest rate cut is likely to be disappointed, economists say, after the Reserve Bank of Australia kept its official interest rate on hold again on Tuesday.

It’s one year since the RBA last made a rate move – a rise on Melbourne Cup Day 2023 – and has reaffirmed it is in no rush to begin rate cuts, despite many central banks around the world lowering their official interest rates in recent months.

In a statement accompanying its decision, the RBA Board said underlying inflation “remains too high” and was unlikely to be in the middle of its target range for some time.

“This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out,” it said.

Some economists who had forecast a cut by February are now pushing out their predictions towards mid-2025 after the RBA declared it did not see inflation returning sustainably to the midpoint of its 2-3 per cent target range until 2026.

Financial markets are not pricing in a full 0.25 percentage point cut until May 2025, but AMP chief economist Shane Oliver is still tipping February and said there was a 25 per cent chance of a pre-Christmas cut.

REA Group senior economist Eleanor Creagh. Picture: Supplied

“The RBA has looked a little more confident that inflation is falling,” Dr Oliver said.

“This is positive and hopeful for those with a mortgage, however we are not there yet,” he said.

“In previous meetings they have considered the case for a hike … at their August meeting they revised up inflation forecasts and made hawkish commentary.

“It’s not foreshadowing a cut yet, but at least it’s moved away from foreshadowing another hike.”

REA Group senior economist Eleanor Creagh said recent Consumer Price Index data confirmed that inflation was easing, but it was “not enough to shift the RBA’s policy stance”.

“Slowing employment and inflation may prompt rate cuts from February 2025, but the resilient labour market and stickier components of inflation could delay this timeline,” she said.

“Despite the economy continuing to track through a period of weak growth, the RBA is likely to remain on hold unless an external shock, higher unemployment or lower underlying inflation occurs, as it aims to sustainably return inflation to target.”

State Street Global Advisors Asia-Pacific economist Krishna Bhimavarapu said ongoing high interest rates could lead to a “downside surprise” in economic growth.

“We see rates remaining restrictive for an extended period now,” he said.

Ray White Group chief economist Nerida Conisbee said the RBA should look to cut in December.

“Interest rate cuts take time to have an impact on the economy,” she said.

“The exact timing of this lag is uncertain. However, some research has shown it can be as much as 18 months. Our economy is holding on for now, but this is unlikely to last.”

Deloitte Access Economics lead partner Pradeep Philip said the biggest drivers of inflation were a lack of housing, impacts of climate change on insurance premiums, and worker and skills shortages.

“While we should never be complacent on inflation, it is clear that interest rates have done their job,” he said.

“Despite growing global uncertainties, a slowing economy, and a continued downward trend in underlying inflation, Australian businesses and mortgage holders remain in limbo awaiting a rate cut.”