n home borrowers face more pain even though the Reserve Bank has left interest rates on hold for the fifth straight meeting – with Governor Michele Bullock confirming a rate rise was considered.
The RBA cash rate was left on hold at a 12-year high of 4.35 per cent on Tuesday but her board hinted another rate rise was still possible.
‘The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,’ it said on Tuesday.
Ms Bullock on Tuesday confirmed the board had considered a rate rise during its two-day meeting.
‘Yes, the board did discuss the case for increasing interest rates at this meeting,’ she told reporters.
She also confirmed a rate cut was not even debated.
‘No, the case for a cut was not considered,’ she said.
Ms Bullock also warned stage three tax cuts coming into effect on July 1 could feed inflationary pressures, with ns now having less in savings.
‘So, it is possible that consumption growth will also be a bit stronger,’ she told reporters.
‘But we also know that many households are feeling the impacts of high inflation and higher interest rates … it’s tough just to keep up with essentials, groceries, petrol, health, education, rents, insurance expenses, I could go on, they’re all going up.’
Headline inflation is still well above the RBA’s 2 to 3 per cent target, with a monthly measure showing ‘s consumer price index in April climbing to 3.6 per cent, up from 3.5 per cent.
The ANZ Bank last week forecast the first rate cut would be delayed until February 2025, out from November.
ANZ’s head of n economics Adam Boyton said the language of the RBA’s Tuesday statement suggested the board was even debating a rate rise.
‘The language in this post-meeting statement suggests the board is in no hurry to cut rates,’ he said.
‘Indeed, it’s quite possible the minutes of this meeting will show an increase in the cash rate was considered.’
The Reserve Bank also warned n inflation is still too high, even though quarterly CPI measures have been easing since hitting a 32-year high of 7.8 per cent in late 2022.
‘Inflation is easing but has been doing so more slowly than previously expected and it remains high,’ it said.
‘Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
‘But the pace of decline has slowed in the most recent data, with inflation still some way above the midpoint of the 2–3 per cent target range.’
Inflation isn’t expected to fall below three per cent until late 2025.
‘The board expects that it will be some time yet before inflation is sustainably in the target range,’ it said.
The RBA has declined to follow the European Central Bank’s lead in this month cutting interest rates, because the EU’s inflation rate of 2.6 per cent is much lower than ‘s.
A fall in ‘s unemployment rate in May to 4 per cent, down from 4.1 per cent in April, is also worrying the Reserve Bank given productivity levels are declining, which could potentially lead to wage pressures as employers struggle to recruit staff.
‘Conditions in the labour market eased further over the past month but remain tighter than is consistent with sustained full employment and inflation at target,’ the RBA said.
‘Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth.’
This means ‘s four million home borrowing households will most likely have to wait for relief from the most aggressive pace of monetary policy tightening since the late 1980s.
Treasurer Jim Chalmers focused on how the RBA hasn’t raised rates since November 2023, even though that move was the 13th increase in 18 months, with 12 of those rises occurring since Labor won the last election in May 2022.
‘Today’s decision by the independent Reserve Bank means by the time the board next meets, it will be approaching nine months since the last interest rate hike,’ he said.
‘Having rates on hold means a little bit more certainty in tough times for mortgage holders and small businesses.’
Monthly mortgage repayments are 68 per cent higher than they were two years ago, as variable rates have climbed from starting with a ‘two’ to starting with a ‘six’.
Deloitte Access Economics partner Stephen Smith said the Reserve Bank would have to cut rates in November to avoid a repeat of 1991 when rate rises caused a recession.
‘An over-exaggerated emphasis on demand management in a weak economy and with inflation trending down will only result in an unnecessary and painful recession,’ he said.