Australian home borrowers face more problems even though the Reserve Bank left interest rates unchanged for the fifth consecutive meeting, with a fresh inflation warning.
RBA cash held steady at a 12-year high of 4.35 per cent on Tuesday and hinted another rate hike was still possible.
“The board remains steadfast in its determination to return inflation to target and will do whatever is necessary to achieve that outcome,” he said Tuesday.
Headline inflation is still well above the RBA’s 2 to 3 per cent, with a monthly inflation measure showing Australia’s consumer price index in April rose to 3.6 per cent, up from 3.5 per cent. hundred.
Last week, ANZ Bank forecast the first rate cut would be delayed until February 2025, rather than November.
Australian home borrowers will face more problems even though the Reserve Bank has left interest rates on hold for the fifth consecutive meeting (pictured, a Melbourne auction)
The Reserve Bank also warned that Australian inflation remains too high, even though quarterly inflation measures have been easing since hitting a 32-year high of 7.8 per cent in late 2022.
“Inflation is declining, but it has done so more slowly than expected and remains high,” he said.
‘Inflation has fallen substantially from its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer to equilibrium.
“But the pace of decline has slowed according to the latest data, and inflation is still somewhat above the midpoint of the 2-3 percent target range.”
Inflation is not expected to fall below three percent until the end of 2025.
“The board expects it to be some time before inflation is sustainably in the target range,” he said.
The RBA has refused to follow the European Central Bank’s lead in cutting interest rates this month, because the EU’s inflation rate of 2.6 percent is much lower than Australia’s.
The RBA has refused to follow the European Central Bank’s lead in cutting interest rates this month, simply because Australian inflation remains too high (pictured Reserve Bank Governor Michele Bullock).
A drop in unemployment in May to 4 per cent, down from 4.1 per cent in April, also worries the Reserve Bank.
“Conditions in the labor market have eased further over the past month, but remain tighter than is consistent with sustained full employment and inflation on target,” the RBA said.
This means Australia’s four million home borrowers will likely have to wait out the most aggressive pace of monetary policy tightening since the late 1980s.
Treasurer Jim Chalmers focused on how the RBA has not raised rates since November 2023, even though it was the 13th increase in 18 months, with 12 of those increases coming since Labor won the last election.
“Today’s decision by the independent Reserve Bank means that when the board meets again, it will be nine months since the last interest rate rise,” he said.
“Having rates on hold means a little more certainty in difficult times for mortgage holders and small businesses.”