Chalmers disappointed as Reserve Bank keeps interest rate unchanged in Australia

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The Reserve Bank of Australia (RBA) chose to keep the cash rate unchanged at 3.6 per cent after its September meeting.

The bank indicated that although inflation has significantly dropped from its 2022 peak, available data, though partial and variable, points to a potentially higher-than-anticipated inflation rate for the September quarter.

On Tuesday, the RBA board unanimously agreed on their cautious stance due to signals that suggest inflation might persist in some sectors.

They emphasized the need to stay alert given the elevated uncertainty surrounding the economic outlook.

Speaking after the decision, RBA governor Michelle Bullock said higher price levels affect everyone but they have been “especially tough on people on low incomes and the more vulnerable”.

“This is why it’s so important to keep inflation low and stable and unemployment as low as possible.”

However Treasurer Jim Chalmers acknowledged the decision would be met with disappointment.

“Many Australian homeowners may not have desired this outcome, but it aligns with what markets and economists predicted,” he mentioned to the media.

Recent inflation indicators

Data showing a rise in the consumer price index (CPI) and an annual trimmed mean — a metric that smooths out certain volatile price movements — above the midpoint of the RBA’s target band of 2-3 per cent had ruled out the possibility of a rate cut.

According to the Australian Bureau of Statistics, consecutive monthly reports revealed that the Consumer Price Index rose 2.8 per cent over the year to July, and then 3 per cent over the year to August—marking the highest rate since July 2024.

Bullock said she still considers Australia’s economy to be in a “good spot” considering these inflation figures and an unemployment rate of 4.2 per cent.

However, she reiterated the board’s position to remain vigilant.

“Market services and housing inflation were a little higher than we were expecting. So, we’re just being a little bit cautious about that. It doesn’t suggest that inflation is running away but we just need to be a little bit cautious.”

The RBA board also acknowledged that both domestic and international factors contribute to uncertainties about the domestic economic trajectory and inflation rates.

The board said that domestically, people may have “become more comfortable consuming as real incomes and wealth rise”, which could lead to businesses passing on cost increases.

However, a recent growth in consumption may not continue “particularly if households become more concerned about overseas developments”.

Treasurer responds to RBA decision

Chalmers said the RBA’s decision to hold the cash rate was “not a surprise” and global economic volatility weighed heavily on both the government and the RBA’s decision-making.

“Interest rates have already come down three times in six months this year,” he said.

“The three interest rate cuts that are already in the system are already providing welcome relief to Australians with a mortgage.”

Chalmers said the government expects inflation to “bounce around” but that the current interest rate, which is in the lower range for recent years, reflects the Albanese government’s progress.

Meanwhile, Opposition treasury spokesperson Ted O’Brien criticized the decision to hold the cash rate as a sign of economic mismanagement and excessive government spending.

The chance of another interest rate cut this year

Economists at NAB, Deutsche Bank, TD Securities, Citi and Nomura have dropped their prediction for another cut this year.

Since the RBA’s last meeting, the economy has grown more strongly than expected, unemployment has stayed low and a material rise in services inflation has threatened the RBA’s inflation forecasts, said Nomura’s Andrew Ticehurst and David Seif.

“We expect (the RBA’s) messaging to pivot back in a much less dovish direction, compared to the communication it provided in August,” they said in a research note.

David Bassanese, the chief economist at Betashares, noted that the RBA’s statement had a “hawkish” tone, implying that they might be less likely to cut interest rates in November than previously thought. However, the Consumer Price Index data for the September quarter will play a crucial role in their future decisions.

Asked what she makes of these predictions, Bullock said economists see the same data as the RBA board.

“It will depend a little bit on what we see coming over the next few months and what our forecasts end up being. So, I can’t say whether they’re right or they’re wrong,” she said.

Bullock said that by the November meeting, the board would have more inflation data about the September quarter and the labour market, as well as more forward-looking indicators.

With additional reporting by the Australian Associated Press.