The Reserve Bank has delivered another blow to millions of Aussies with a mortgage by declining to cut interest rates during a cost-of-living crisis.
The cash rate was left on hold at a 12-year high of 4.35 per cent even though the US, UK, Canada, European Union and New Zealand have this year already cut interest rates.
Reserve Bank Governor Michele Bullock delivered a blunt message on Tuesday to borrowers hoping for some relief after the most aggressive hikes in a generation.
‘While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,’ she said.
She also blamed international students and ‘s high immigration levels for the cost-of-living crisis.
Underlying inflation, stripping out volatile price movements, was 3.9 per cent in the year to June, putting it way above the RBA’s 2 to 3 per cent target.
Headline inflation was slightly lower at 3.8 per cent but only because of the federal government’s temporary $300 energy rebates that came into effect on July 1.
The RBA board emphasised its preferred underlying inflation measure, known as the trimmed mean, would be unlikely to fall under 3 per cent until the end of 2025, referencing last month’s statement on monetary policy.
‘The most recent projections in the August SMP show that it will be some time yet before inflation is sustainably in the target range,’ it said.
Ms Bullock also hinted another rate rise was still possible, even though the U.S. Federal Reserve last week delivered a super-sized 50 basis point rate cut.
‘Data since then have reinforced the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out,’ her board said.
‘Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range.’
Ms Bullock also blamed international students, the key driver of high immigration, for inflation remaining high.
‘Earlier declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on consumption, particularly discretionary consumption,’ she said.
‘However, growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, remained more resilient.’
‘s economic growth pace of 1 per cent is the slowest since 1991, the year of a recession, outside of a pandemic.
In a sign of tension with the RBA, Treasurer Jim Chalmers is holding a 3pm AEST media conference on Tuesday afternoon, ahead of Ms Bullock’s 3.30pm press conference in Sydney.
The Reserve Bank’s 13 interest rate rises in 2022 and 2023 were the most aggressive since the late 1980s.
‘s key inflation measures are higher than other first-world nations that have this year cut rates.
But the RBA cash rate – at 4.35 per cent since November 2023 – didn’t go as high as the equivalent policy rates in the US, UK, Canada or New Zealand.
The futures market had regarded a rate cut as only a 10 per cent chance heading into Tuesday’s decision.