Reserve Bank holds interest rates steady despite inflation hitting four-year low

The Reserve Bank of Australia (RBA) has kept interest rates on hold despite inflation falling to its lowest level in almost four years.

At a meeting ahead of today’s Melbourne Cup, the board decided to leave the cash rate target unchanged at 4.35% and the interest rate paid on exchange settlement balances at 4.25%.

Underlying inflation

While inflation had “fallen substantially” since peaking in 2022, underlying inflation remained too high at 3.5% in the September quarter.

Despite it marking the first time in 3.5 years that inflation has been below 3%, it was still some way off from the 2.5% midpoint.

“The November statement of monetary policy forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint,” the statement said.

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

No mortgage relief

The decision to hold rates is expected to fall flat with homeowners hoping for some mortgage relief in time for Christmas.

The major banks have all backtracked from a 2024 rate-cut prediction, with the Big Four now in agreement on a cut of some sort by February 2025.

“We shouldn’t be holding our breath for a lot of interest rate cuts in Australia, and we shouldn’t want a lot of interest rate cuts because that signals the economy is not going well,” a National Australia Bank economist commented.

“Any cuts are likely to be modest through the first half of next year.”

Industry research shows millions of homeowners have admitted feeling like they have taken on far too much debt, with one in every five households missing a repayment in the last year.