RBA chief’s major hint that there could soon be some VERY good news ahead for home-owners

The Reserve Bank has given strong indications that interest rate cuts are coming even though inflation remains too high.

Minutes from the RBA’s December meeting, published on Tuesday, suggested the next step would likely be a cut should inflation fall towards its target of two to three per cent at a faster pace.

“Should that occur, members concluded that, in due course, it would be appropriate to begin easing the degree of monetary policy tightness,” he said.

This is a big change from November, when Reserve Bank Governor Michele Bullock hinted that a rate hike was still possible.

“We are watching the data closely and are not ruling anything out,” he said at the time.

“So the reason I say we’re not ruling out anything in or out is that we think there are still some upside risks.”

However, the minutes of the Reserve Bank’s December meeting still expressed concern about high inflation, despite indicating for the first time that the next step was likely to be a cut.

“In weighing the possible implications of these observations for future decisions on the monetary policy stance, members reiterated their previous view that they had minimal tolerance to accommodate a longer period of high inflation than currently expected,” it said.

While headline inflation is at a three-year low of 2.8 per cent, the RBA saw this as a result of temporary $300 electricity rebates and cheaper petrol prices.

Core inflation without extraordinary factors, known as the trimmed average, was higher at 3.5 per cent in the year to September, putting it above the Reserve Bank’s target of 2 to 3 per cent.

The RBA noted that other nations – including the US and the UK – have been cutting rates this year, although they have not done so.

But the minutes suggested rate cuts were unlikely to be as deep overseas, after the US Federal Reserve last week terrified financial markets by hinting that fewer rate cuts were likely in 2025. than expected.

“Despite reductions overseas, the combination of market prices and central banks’ estimates of neutral interest rates implied that monetary policy could be more contractionary in several economies than in Australia and remain so through 2025. “the minutes said.

The Reserve Bank of Australia’s cash rate of 4.35 per cent is now 110 basis points higher than Canada’s equivalent policy rate of 3.25 per cent, following four rate cuts in 2024.

New Zealand also has a lower cash rate, at 4.25 per cent, after three rate cuts this year failed to stop a recession.

In Australia’s case, the RBA’s 13 rate hikes in 2022 and 2023 have not yet caused a technical recession, but the pace of economic growth of just 0.8 percent in the year to September was the weakest since the 1991 recession.

However, Australia’s 4.35 percent cash rate remains marginally lower than the US Fed’s equivalent level of 4.25 percent to 4.5 percent and the Fed’s 4.75 percent. Bank of England.