RBA keeps rates on hold at 4.35pc amid inflation watch

The Reserve Bank board has held interest rates steady for a third consecutive meeting, but offered scant encouragement to struggling mortgage holders.

RBA Governor Michele Bullock on Tuesday. Picture: NCA NewsWire / Jeremy Piper

Reserve Bank governor Michele Bullock says the “war isn’t yet won” against high inflation, after the board held interest rates steady for a third straight meeting and refused to signal mortgage ­relief was on the way.

With the cash rate stuck at a 12-year high of 4.35 per cent, Ms Bullock said bringing inflation back under control remained the central bank’s highest priority, declaring “we continue to be vigilant and we can’t rule anything in all out”.

Economists saw some softening in the board statement accompanying Tuesday’s decision, however, which removed an explicit reference that “a further increase in ­interest rates cannot be ruled out”.

And despite the RBA’s insistence that all options were on the table in terms of future rate moves, the weight of opinion remains that the next move in rates will be down, not up, and investors on Tuesday moved forward their predictions for a first rate cut from September to August.

Ms Bullock did offer some encouragement to that view, saying the recent string of economic data showed “we’re on the right track”, but that the RBA board wanted more confidence that inflation would return to the 2-3 per cent target range within an acceptable time.

“We’re making progress in our fight against inflation, but it does remain high,” Ms Bullock said in a press conference after the board meeting.

She said she “firmly believed” that the nation was on track to bring inflation back under control without triggering a recession, but emphasised that the future ­remained highly uncertain.

With consumer price growth predicted to fall below 3 per cent in the second half of 2025, Ms Bullock said “if we were to see some ­acceleration and get some more confidence that we are overachieving there, then possible rate cuts might be something on the agenda”.

“But at the moment we’re not saying that. We’re in a position where we’re cautious. We want to wait and see. As I said, there are risks on both sides, and we need to be conscious of that,” she said.

“The war isn’t yet won. So we continue to be vigilant, and we can’t rule anything in or out.”

AMP chief economist Shane Oliver said “like other central banks, it (the RBA) wants to avoid the risk of cutting too early and then having to reverse course if ­inflation proves too high”.

“That said, its move to a neutral bias, away from a clear tightening bias, is a likely step towards cutting,” Dr Oliver said, adding that the first cut could come as early as June.

The 13 rate hikes since May 2022 have added a notional $1815 to the monthly repayments for a homeowner with a $750,000 mortgage, and $1210 to the monthly repayments on a $500,000 loan.

Jim Chalmers said the RBA’s decision to extend the pause on ­interest rates was “a reflection of the good progress that we are making as a country in the fight against inflation”.

“It gives us confidence that inflation is moderating in welcome and encouraging ways,” the Treasurer said in parliament.

“It’s not anything like ‘mission accomplished’, because people are still under considerable cost of living pressure.”

The RBA board’s latest decision comes after national accounts figures showed economic growth slowed to a near standstill at the end of last year, as cost-of-living pressures and soaring borrowing costs crushed consumption.

Inflation, on a monthly basis, has slowed to 3.4 per cent in the year to January, although Ms Bullock warned that the evidence from overseas showed that getting price growth under control was “a bumpy ride”.

Ms Bullock played down fears that last week’s Fair Work Commission decision to hand aged care workers an extra 13.5 per cent wage rise would add to inflationary pressures, saying it would “not make a measurable difference” to the bank’s forecasts, and described it as “a very worthy pay rise”.

Jobs figures on Thursday loom as the next major data release, with analysts anticipating that the end of summer seasonal factors will drive a rebound in employment and push unemployment back down to 4 per cent, from 4.1 per cent.

Any disappointment in the ­labour force figures would add to the probability of a rate cut in the next six months.

As economists poured over RBA officials’ language for any signals on the future path of interest rates, Westpac chief economist Luci Ellis said removing language that the board “will do what is necessary” to bring inflation back to target was a “significant deletion”.

“It suggests that the board recognises that the base case is that it is on hold for some time,” Dr Ellis said.

“Given the recent data flow and the shift in the RBA’s language, we continue to expect that the RBA is on hold until its late-September meeting.”