RBA Signals Interest Rate Cuts Unlikely Anytime Soon

The country’s mortgage holders were spared further pain on Tuesday when the Reserve Bank of Australia agreed to leave the cash rate unchanged at 4.35 per cent, but governor Michele Bullock has made it clear—watch this space.

As was widely predicted, the RBA board continued to hold the cash rate at a 12-year high at its May 7 meeting, but was quick to point to recent economic data, saying while inflation was easing, “it is doing so more slowly than previously expected and it remains high.”

“The board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks,” the bank said in a statement.

The RBA has lifted interest rates 13 times between May 2022 and November 2023 in an attempt to rein in inflation, which the bank wants to see fall to a target range of 2 per cent to 3 per cent.

“The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth,” the bank said after its meeting.

It is forecasting the inflation rate will not go below that 2 to 3 per cent mark before the second half of 2025, and up to the middle of 2026.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out.”

Ray White chief economist Nerida Conisbee said inflation figures recorded in March had changed the interest rate outlook dramatically.

▲ RBA governor Michele Bullock: Not ruling anything in, or anything out.

Economists were looking at interest rate cuts by October this year, but in just 24 hours that timing had changed to April of 2025, after March’s hotter-than-expected inflation figures coupled with an unemployment rate at a near 50-year low.

“Looking at data at this exact point in time suggests no cut in 2024,” Conisbee said after the board’s decision.

“However, as we consistently see, the outlook can change dramatically depending on what data is released,” she said, pointing to economic growth figures to be released early next month.

“If we see a decline in GDP, it may be enough to push the RBA to move more quickly, perhaps even cutting rates while inflation remains above three per cent.”

While noting Bullocks language was “more hawkish”, AMP chief economist and head of investment strategy Shane Oliver said they continued to see the trend in inflation remaining down, which would ultimately help avert another rate hike.

“However, the road to rate cuts will likely remain bumpy,” he said, “and while our base case is now for the first cut to come at year end, the risk of another rate hike in the near term is significant as is the risk of a further delay in rate cuts into next year.”

For her part, Bullock admitted to reporters at a press conference after the meeting the board had discussed raising interest rates.

“We think policy is restrictive,” she said.

“We don’t think we necessarily have to tighten again, but we can’t rule it out. If we have to we will. If we really think that inflation is going to be persistent and significantly above our forecast, we will tighten again. 

“I think we’ve always felt that it was a bit too soon to declare victory, and I think the numbers in recent weeks have demonstrated that for us.”