Inflation improving but Reserve Bank keeps cash rate unchanged
Despite improving inflation trends, the Reserve Bank of Australia has decided it’s a tad too early to reduce the official cash rate, with the board deciding at its meeting today to leave the rate unchanged at 4.35%.
It now marks a year since the Reserve Bank has made any change to the OCR – the last time was in November 2023, when it lifted the rate 0.25% to its current rate of 4.35%.
The board met on Tuesday, November 5 – Melbourne Cup day – and released its decision shortly before the “race that stops the nation”.
While ABS figures released last week showed that inflation had fallen to 2.8% annually for the September quarter, the lowest rate since the March 2021 quarter, services inflation and the trimmed mean remained above the RBA’s 2% to 3% range, and unemployment also remains low.
In its November decision, the RBA board said underlying inflation remained too high.
“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” the RBA said.
“Headline inflation was 2.8% cent over the year to the September quarter, down from 3.8% over the year to the June quarter. This was as expected due to declines in fuel and electricity prices in the September quarter.
“But part of this decline reflects temporary cost of living relief. Abstracting from these effects, underlying inflation (as represented by the trimmed mean) was 3.5% over the year to the September quarter.”
The RBA said this as forecast but still some way from the 2.5% midpoint of the inflation target.
“The forecasts published in today’s Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026. The outlook remains highly uncertain.”
The decision to not cut interest rates was widely expected, with every single one of the 38 experts canvassed in Finder’s Cash Rate Survey predicting no change to the official cash rate.
MPA sought the reaction of mortgage and finance industry leaders on the Reserve Bank’s Decision, including Teachers Mutual Bank Limited (TMBL) chief customer officer Greg Johnson (pictured above left) and Mortgage Choice CEO Anthony Waldron (pictured above right).
TMBL reaction to RBA’s decision
Johnson said he believed the RBA’s decision to hold the official cash rate would be welcomed by those with a home loan.
“However, with ongoing discussion over the course of the year about when the RBA may decrease rates this may also be met with some disappointment by these customers,” Johnson said.
“For our many customers who have deposits with us, I am sure they will welcome the continued higher interest rates supporting their savings and retirement goals.”
Johnson said brokers typically saw increased opportunity to help their customers in a changing rate environment and would be looking forward to a change in rates to stimulate customer demand for their assistance.
“Commentary from the RBA suggests they are determined to see inflation within the target range and until that time, without a change in policy I expect the RBA to remain on hold.
“Updated inflation and employment data will be a critical determinant and with geopolitical instability and a potential, material change of government in the USA, the continued downward trend on inflation is not assured.”
Mortgage Choice reaction to RBA’s decision
Waldron said while many people were hoping to see a cut to the cash rate this month, two important data releases from the Australian Bureau of Statistics were key factors in the RBA’s decision to hold.
“The first is the latest quarterly ABS Consumer Price Index, which showed that underlying inflation remains high, despite inflation now sitting within the RBA’s target of 2% to 3%,” said Waldron. “And the ABS Labour Force data showed that the employment and participation rates are at record highs, which could put upward pressure on inflation.”
While the prospect of a cash rate cut remained on the horizon, Waldron said he expected the RBA would want to be more confident that inflationary pressures had eased before making that call.
“I encourage hopeful buyers to meet with a mortgage broker to ensure they understand their borrowing power and can make an offer with confidence.
“And, if you’re a mortgage holder who hasn’t reviewed your home loan for at least a year, I’d recommend speaking to your broker to make sure your loan is still the best option for you.”
What do you think of the RBA’s November decision to keep the cash rate unchanged? Comment below.
