RBA refuses to rule out rate hikes

In unwelcome news for mortgage holders, the Reserve Bank’s message is they are not ruling in or out another rate hike, even as much of the developed world moves to lower rates.

At its latest meeting in November, the central bank left the official cash rate at 4.35 per cent, and now has not changed interest rates for 12 months.

The central bank said in the minutes of its latest monetary policy meeting that it thinks Australia’s current policy settings are restrictive, although the degree to which this was the case remains uncertain.

“Members noted that monetary policy might need to be adjusted if the Board formed the view that the stance of policy was not as restrictive as had been judged,” the board said in the minutes.

“They agreed it was important to pay close attention to potential signs of this, including developments in credit growth, banks’ willingness to lend and growth in asset prices.”

The RBA said based on the information available at their November meeting, members agreed that it was “not possible to rule anything in or out in relation to future changes in the cash rate target”.

“Returning inflation to target remains the Board’s highest priority and it will do what is necessary to achieve that outcome.”

The RBA said the economy appeared to be evolving in line with earlier expectations, with monetary policy to remain restrictive until the board is confident that inflation is moving sustainably towards the target.

They said much of the world, which is cutting interest rates, was still assessed to be more restrictive than Australia’s own central bank.

While inflation has gradually fallen back into the target band at 2.8 per cent, the RBA said it is watching the underlying inflation, which removes volatile items, which currently sits at 3.4 per cent – above the target.

This is mainly due to federal and state government subsidies which is pushing the price down on energy and childcare.

“However, members observed that underlying inflation – as indicated by the ‘trimmed mean’ measure – remained too high and that the staff forecasts did not see inflation returning sustainably to target until 2026,” the board said.

The board highlighted strength in economic growth had remained strong, although it wasn’t all good news for the economy as GDP growth remained subdued largely due to weakness in consumption.

The staff forecasted consumption growth would pick up in 2025, while unemployment would stabilise towards the target full employment rate by late 2025.

NAB became the first of the major banks to update their rate cutting prediction, saying the RBA won’t start reducing interest rates until May 2025.

“The labour market has been stronger than expected and the RBA remains concerned about upside risks to inflation should gradual labour market cooling stall and capacity growth remain sluggish,” NAB stated in its updated monetary policy published on Thursday.

“On 30 September, we pulled our rate call forward to a first cut in February.

“We did that expecting an improving balance of risks around the inflation outlook would bring a rate cut into view sooner.

“While Q3 CPI data was as expected, we have been surprised by resilience in labour market indicators.

“It remains our view that the unemployment rate will rise a little further before stabilising around 4.5 per cent in mid 2025, broadly in line with the RBA’s November forecast track.”