Key Points
- The Reserve Bank has kept interest rates on hold at 4.35 per cent.
- However, the central bank said it could not rule out further rate hikes this year.
- An RBA graph of economic assumptions points to a possible rate cut in December.
Borrowers could enjoy an interest rate cut in December if quarterly assumptions from the central bank play out.
But the new governor of the Reserve Bank of Australia (RBA) Michele Bullock, is not ruling anything in or out — including a possible rate hike this year too.
The RBA kept rates on hold at 4.35 per cent on Tuesday after the board's first cash rate meeting for 2024.
In its statement on Tuesday, the board said inflation remained still too high at 4.1 per cent and that it could not rule out a further increase in interest rates.
"We're not ruling in or out anything," Bullock told reporters in a press conference following the decision.
"We have maintained the option that it might be that there has to be more rate rises, but there might not be either."
Bullock said she understood borrowers were "sweating on this" but the bigger issue was inflation.
"The fact that inflation is so high in so many parts of their lives at the moment is what's really hurting them."
Economists had largely been predicting rates would be kept on hold on Tuesday after in the December quarter, down from 5.4 per cent in September.
The bank aims to keep inflation between a target range of 2-3 per cent. The RBA expects that inflation will drop into that target range in 2025 and the midpoint of the range will be reached in 2026.
When will rates be cut?
Some economists have predicted the earliest interest rate cuts could happen around September 2024.
NAB and ANZ are currently forecasting just one cut this year in November, according to comparison site Rate City.
In its February statement on monetary policy, the RBA included a range of forecasts, including for GDP and inflation.
As part of that, the RBA included assumptions on where the cash rate would sit this year. That assumption includes a December rate cut down to 3.9 per cent. But before that, it assumes the rate will be hiked to 4.3 per cent in June.
Bullock stressed that these were assumptions and not anything beyond that.
The RBA's assumptions of the cash rate and inflation.
"It's something to work with. As we move out with our forecast, it gets more uncertain."
What do economists say?
Steve Mickenbecker, group executive of financial services at comparison site Canstar, said that barring any unexpected setback, the next cash rate movement would be down.
Nonetheless, a cut is "likely to be at least six months away and even if interest rates have peaked, mortgage holders will be enduring another period of pain before there is even any modest repayment relief," he said.
"A mild risk to this is the potential for inflationary pressure from the changes to the stage three tax cuts as this was not included in the RBA's most recent forecasts," BDO Economics partner Anders Magnusson said.
