Cash rate holds steady, but uncertainty remains: RBA

Today’s meeting (6 February) has marked the commencement of the RBA’s new process regime based on the recommendations made in the RBA review that will now see the board meet eight times a year (every six weeks) instead of 11, with meetings taking place over two days (the board met yesterday afternoon and continued until today).

Notably, this meeting was the first time in the RBA’s history that the board has met on a Monday.

In its post-meeting statement, the RBA revealed: “While there are encouraging signs, the economic outlook is uncertain and the board remains highly attentive to inflation risks.

“Returning inflation to target within a reasonable time frame remains the board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment.

“The board needs to be confident that inflation is moving sustainably towards the target range. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable time frame will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.”

RBA governor Michele Bullock stated in the post-meeting press conference that there are still looming risks that could alter the board's position on monetary policy, particularly around overseas conflicts.

She added that the RBA remains committed to bringing inflation down to its target band of 2-3 per cent, and has not "ruled in or ruled out" future rate increases.

Commenting on the decision, chief executive of aggregator Mortgage Choice, Anthony Waldron, said the cash rate hold was unsurprising due to the December Consumer Price Index (CPI) figures released by the Australian Bureau of Statistics (ABS) and a large fall in retail spending over the typically higher holiday period.

“This hold decision will be welcomed by buyers and borrowers around the country. The Mortgage Choice brokers I’ve spoken with as the year gets underway are reporting a strong sense of optimism in the market,” Mr Waldron said.

Although bond traders and the money market brought forward rate cut predictions to the second half of 2024, the RBA has been transparent in its goal to return inflation to 2–3 per cent, Mr Waldron added.

Executive director for aggregator Connective, Mark Haron, said that borrowers can “take comfort” in rates being unchanged.

“With the fall in the recent inflation rate, the year ahead looks encouraging,” Mr Haron said.

“People are already considering entering the market now to seize opportunities before potential interest rate cuts later this year. In many recent discussions with brokers, they have noted significant anticipation among borrowers. Some plan to upgrade their existing property, while others are eyeing a second one.

“Now is the time for brokers to initiate new conversations. Connecting with borrowers at the right time and utilising the right tools and technology can demonstrate knowledge, value, and alignment with their needs.”

Greens economic justice spokesperson Senator Nick McKim lambasted the RBA's decision to hold interest rates, accusing the central bank of continuing to punish households for "an inflation crisis they did not cause".

“In a time when economic inequality is deepening and ordinary Australians are struggling under the weight of financial stress, the Reserve Bank's failure to cut interest rates is an active decision to make that stress worse.

“This decision fails to recognise the urgent need for relief among mortgage holders and renters alike, who are already battling the cost of living crisis that has seen prices for essentials skyrocket.”

“The RBA were extremely quick to put up rates, they need to deliver relief to households with the same pace and urgency," Senator McKim said.

Why the rate hold was not a surprise

The December CPI figures revealed that that quarterly inflation rate had increased by 0.6 per cent, the smallest quarterly increase recorded since March 2021. This largely led to expectations that the RBA had no reason to lift interest rates.

Furthermore, annual inflation rose by 4.1 per cent by December 2023, down from the 7.8 per cent peak recorded in December 2022.

Major bank economists now believe interest rates have reached its peak, with the next move likely being rate cuts, set to begin in the latter half of the year.

[RELATED: Brokers anticipate cash rate hold]