Reserve Bank Governor Issues Advisory on Next Year's Interest Rates

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The Reserve Bank of Australia (RBA) has kept the interest rate unchanged for a third time at its December meeting, with governor Michele Bullock all but ruling out further mortgage relief in the new year.

Bullock said further cuts to the official cash rate are not part of the bank’s thinking, “given what’s happening with underlying momentum in the economy … it does look like additional cuts are not needed”.

“I don’t think there are interest rate cuts on the horizon for the foreseeable future.”

The RBA board did not consider the case for a rate hike at today’s meeting, she said, but given inflationary pressures there were discussions about the possibility of raising the rate next year.

The prospect of an interest rate hike next year was a significant topic of discussion, according to a recent statement by a financial expert. “We thoroughly deliberated on the circumstances that might necessitate an increase in interest rates sometime in the upcoming year,” she remarked.

It was widely anticipated by the major banks and economists the cash rate would remain at 3.6 per cent after Tuesday’s meeting.

In a statement released by the RBA board, the group said its decision was informed by inflation rates, noting that while inflation is lower than its peak in 2022, “it has picked up more recently”.

“The board’s judgement is that some of the recent increase in underlying inflation was due to temporary factors and there is uncertainty about how much signal to take from the monthly CPI data, given it is a new data series,” it reads.

She further highlighted that current data indicates signs of inflation becoming more widespread. “Part of this inflation may be persistent, so it warrants careful monitoring,” she added.

A chart showing the interest rate in December.

Ahead of Tuesday’s meeting, major banks and economists widely expected the cash rate to remain steady at 3.6 percent, aligning with forecasts. This expectation was reported by SBS News.

The latest figures for the September quarter revealed a consumer price index of 3.2 percent, which surpasses the Reserve Bank’s target inflation range of 2 to 3 percent.

Domain chief economist Nicola Powell said the turnaround in rate expectations could help take heat out of the rapid price growth in the housing market during the past year.

“However, it doesn’t solve the deeper affordability issues,” she said.

“Mortgage holders are still managing repayments that are significantly higher than they were before the tightening cycle began in 2022.”

The outlook for households and businesses has soured markedly from a few months ago, when bonds traders were pricing in one or two more cuts.

IG market analyst Tony Sycamore said: “This isn’t the statement of a central bank with one hand hovering over the rate hike button,” adding that CPI data points to a broader rise in inflation “part of which could prove persistent.”

— With additional reporting by the Australian Associated Press.