Two words fuelling rate pain for Aussies

The Reserve Bank has flagged Aussies are unlikely to see any reprieve in interest rates until inflation returns to “sustainable” levels.

Governor Michele Bullock on Tuesday announced the RBA board had elected to keep interest rates on hold at 4.35 per cent for the seventh meeting in a row.

Referring to the underlying inflation, or the trimmed mean, Ms Bullock said the board would not cut the official cash rate until the all important metric was within the bank’s target range between 2 to 3 per cent.

“The board needs to be confident that inflation is moving sustainably towards the target before any decisions are made about a reduction in interest rates, so we really need to see progress on underlying inflation coming back down toward the target,” she said.

In comments to media, she flagged this would not be anytime soon, with inflation figures for the month of July showing underlying inflation was at 3.7 per cent.

“Progress in getting underlying inflation down has slowed, and it’s likely to have remained slow in the September quarter,” she said.

The RBA’s own forecasting also says underlying inflation would not reach the target range until late 2025, and would not hit the midpoint until late 2026.

The Australian Bureau of Statistics will on Wednesday release the August monthly inflation figures, which economists have tipped will reveal headline inflation dropping to 2.7 per cent.

The drop will largely be due to state and federal energy rebates, and lowered fuel prices.

While this figure would be within the RBA’s target inflation range of 2 to 3 per cent, it will do little to sway the RBA into lowering a rate cut when it hands down its next interest rate update on November 5, Melbourne Cup day.

“If tomorrow we get an inflation number which has got a two in front of it, so it’s back in the band, it doesn’t mean we’ve got inflation under control,” she said.

“It doesn’t mean that inflation is sustainably back within the band. It just means it’s back there at the moment.”

Ms Bullock’s words signalled to stressed mortgage payers that they will have to wait, with Betashares chief economist David Bassanese not forecasting a cut until the board’s first meeting in 2025 in February.

“With the labour market still considered tight, and aggregate consumer spending holding up due to the influx of foreign students and tourists, it’s a forlorn hope to expect the RBA to provide interest rate relief anytime soon,” he said.

However, he said the RBA “need not and likely won’t wait” until underlying inflation reaches its target band, pointing towards the US Federal Reserve’s decision to cut its cash rate by 50 basis points.

Ms Bassanese also said it was worth noting, the US interest rate peaked higher than Australia’s, with their underlying inflation also now falling “considerably further”.

Three out of the big four banks are also forecasting the cash rate to remain at 4.35 per cent until at least February next year.

Westpac and ANZ have tipped a February cut, with NAB pushing the decision out to May.

CBA is the outlier, predicting rates to come down at the RBA’s pre-Christmas meeting.

Ms Bullock however, has been less forthcoming on putting forward a specific date.

While she acknowledged this would not be welcome news to struggling households, she reiterated the RBA’s need to lower inflation and not risk rising unemployment and economic stagnation.

“All I would do is reiterate … that we are look at the data and we’re not ruling out we might raise, we’re not ruling out we might cut,” she said.

“When the time comes, then we’ll have a discussion about how urgent (we move) in one direction or the other … and how big those moves will be.”