Aussies are dealt interest rate blow – as telling sign emerges of when much-needed relief will finally come

Australian home borrowers have been dealt another blow just half an hour before the Melbourne Cup with interest rates on hold, with a fresh inflation warning.

The Reserve Bank kept the cash rate unchanged at a 12-year high of 4.35 per cent on Tuesday afternoon and warned inflation would not moderate “sustainably” until 2026.

“Policy will have to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range,” he said.

The RBA also warned it could still raise rates, even though borrowers in Canada, New Zealand, the European Union, the United States and the United Kingdom have already received some relief this year.

Australia’s big four banks (Commonwealth, ANZ, Westpac and NAB) now expect the RBA to cut rates in February for the first time since late 2020.

The futures market now expects three rate cuts in 2025, but does not see any relief until May.

The RBA also issued a monetary policy statement forecasting that inflation will not “sustainably” return to the midpoint of its 2 to 3 percent target until 2026.

Australia’s headline inflation rate in the year to September fell to a three-and-a-half-year low of 2.8 per cent, putting it within that target band.

But core inflation was higher, at 3.5 percent, when the one-time effects of the federal government’s $300 electricity rebates and falling gasoline prices were excluded from the quarterly data.

“While headline inflation has fallen substantially and will remain low for some time, core inflation is more indicative of inflationary momentum and remains too high,” the RBA said on Tuesday.

The Reserve Bank has even left open the possibility of another rate hike, although financial markets are not betting on a rise in Australia.

“This reinforces the need to remain vigilant to upside risks to inflation and the board is not ruling anything out,” he said.

Charu Chanana, chief investment strategist at Saxo Asia Pacific, said the Reserve Bank was deliberately trying to squash expectations of a rate cut.

“The RBA remains on the hawkish side of the global central bank spectrum as it continues to move away from clear rate cut signals,” he said.

“That clearly fails to have an impact on the markets, especially on a day when markets are awaiting the results of the US elections in a very close race, as well as the announcements of new stimulus measures from China.”

The November meeting was the penultimate of 2024, with the RBA meeting again on December 9-10.

The Reserve Bank also hinted that it would be monitoring the outcome of the US presidential election, in which Republican Donald Trump is the market favorite to return to the White House with a plan to impose double-digit tariffs on goods. imported.

“The board will continue to rely on the data and developments in the risk assessment to guide its decisions,” he said.

“In doing so, it will pay close attention to developments in the global economy and financial markets, domestic demand trends, and inflation and labor market prospects.”

Governor Michele Bullock will hold a press conference at 3.30pm AEDT Sydney time.