- RBA leaves interest rates on hold
- Governor Michele Bullock confirmed the board didn’t consider the case for a rate cut ‘at all’
The Reserve Bank of Australia has denied mortgage holders an early Christmas gift, leaving interest rates on hold at its final meeting of the year.
In a widely anticipated, unanimous decision on Tuesday, the central bank’s monetary policy board kept the cash rate steady at 3.6 per cent.
The return of inflation in the second half of 2025 scuppered hopes of more interest rate cuts, following 75 basis points of easing since February.
The rates market and most economists now believe the RBA’s easing cycle is over.
If inflationary pressures continue to build, some analysts say the bank could be forced to hike interest rates as soon as February.
At a press conference on Tuesday afternoon, RBA governor Michele Bullock confirmed the board didn’t consider the case for a rate cut ‘at all.’
‘We didn’t explicitly consider the case for a rate rise at this meeting, but we did consider and discuss quite a lot the circumstances and what might need to happen if it we would decide that interest rates had to rise again at some point next year,’ Ms Bullock said.
‘We’ve been judging that financial conditions were still a little bit tight.’
Ms Bullock added: ‘If inflation continues to be persistent and looks like it is not coming back down towards the target, then I think that does raise questions about how tight financial conditions are and the board might have to consider whether or not it’s appropriate to keep interest rates where they are or in fact at some point raise them.
‘But I wouldn’t put a timing on that. It’s going to be a meeting by meeting decision.’
Ms Bullock also confirmed the board will continue to monitor the labour market in February and beyond.
‘If the indications from these numbers… suggest there is still tightness in the labour market and inflation is not trending back down sustainably, that will be the question the board will be considering meeting by meeting,’ she said.
Domain chief economist Nicola Powell said the turnaround in rate expectations could help take some heat out of the rapid price growth in the housing market over the past year.
‘However, it doesn’t solve the deeper affordability issues,’ she said.
‘Mortgage holders are still managing repayments that are significantly higher than they were before the tightening cycle began in 2022.’
The outlook for households and businesses has soured markedly from a few months ago, when bonds traders were pricing in one or two more cuts.
Business confidence plummeted to its lowest level since April, according to NAB’s monthly business survey.
The index fell five points in November but remains just above zero, meaning more businesses remain optimistic than pessimistic.
Business conditions also retreated three index points, as firms noted weaker profitability and trading.
‘While the November result shows a break in the recent positive momentum in the survey, business conditions remain well above their early 2025 levels,’ NAB chief economist Sally Auld said on Tuesday.
Despite the fall in activity, capacity utilisation climbed to its highest level in 18 months.
The RBA has flagged concerns the economy is operating at maximum capacity and cannot grow further without pushing up inflation.
Recent inflation data showed the consumer price index rose to 3.8 per cent in the 12 months to October, while underlying inflation climbed to 3.3 per cent – both above the RBA’s two to three per cent target range.
Treasurer Jim Chalmers said that, while millions of Australians would have preferred a rate cut, the decision was widely anticipated by economists and markets.
Despite the fall in activity, capacity utilisation climbed to its highest level in 18 months.
The RBA has flagged concerns the economy is operating at maximum capacity and cannot grow further without pushing up inflation.
Recent inflation data showed the consumer price index rose to 3.8 per cent in the 12 months to October, while underlying inflation climbed to 3.3 per cent – both above the RBA’s two to three per cent target range.
‘Inflation has moderated substantially since we came to office and that has given the Reserve Bank the confidence to cut interest rates three times this year,’ he said in a statement. ‘This is a reflection of the significant progress Australians have made together over the last few years.’
But Shadow Treasurer Ted O’Brien said the RBA decision was proof that the Albanese government ‘cannot manage the economy’.
‘It’s tragic news for households just ahead of Christmas – to think that there will be no relief, and the year ahead will be even worse,’ he told reporters.
‘There are so many young Australians who cannot afford to buy a home, and every time they look at that online mortgage calculator, the numbers just do not add up.
‘Today’s decision will continue to see it very difficult to add up.’
Reaction from the ASX was minimal, following the decision on cash rates, with the Australian dollar steady at about 66.42 US cents, currently up 0.3 per cent.
Local markets extended losses into negative territory today, as the ASX200 closed down – 0.4 per cent to 8,585 points, while the broader All Ordinaries fell -0.4 per cent to 8,875 points.
Read more
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