RBA still sees ‘upside risks’ and ‘not ruling anything in or out’: Bullock

This is the eighth consecutive time Australia’s central bank has kept the cash rate stable and marks a year since the cash rate last moved (it increased 25 basis points in November 2023).

The decision, announced on Tuesday (5 November), comes as the central bank works to bring inflation into its target band of 2-3 per cent. While the latest quarterly inflation figures showed that the consumer price index (CPI) returned to the Reserve Bank of Australia’s (RBA) target range for the first time in more than three years in the September 2024 quarter – at 2.8 per cent – this was largely driven by energy rebates and fuel prices falling.

When removing the items with the largest price changes, the trimmed mean for annual inflation was still out of the target range, at 3.5 per cent (or 0.8 per cent up over the quarter).

Indeed, RBA governor Michele Bullock has repeatedly said that the board is focused on “sustainably” returning inflation to target within a reasonable time frame, and this language was repeated in the November statement.

The RBA’s quarterly Statement on Monetary Policy (SMP) also noted that while inflation had fallen, the trimmed mean “is still some way from the 2.5 per cent midpoint of the inflation target”.

The forecasts published in the SMP do not see inflation returning sustainably to the midpoint of the target until 2026, for example.

“To date, longer-term inflation expectations have been consistent with the inflation target, and it is important that this remains the case,” the statement said.

“While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high.”

’Board not ruling anything in or out’

During a press conference following the announcement, Bullock added that the board still saw some “upside risks” to the economy and was therefore “not ruling anything in or out”.

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

“Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range.”

The RBA board said it would continue to “rely upon the data and the evolving assessment of risks to guide its decisions”, including by paying “close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market”.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” the SMP said.

The bank recently created a new monetary policy strategy team and has appointed Dr Meredith Beechey Österholm to the newly created role of head of monetary policy strategy, where she will assist the board in developing monetary policy strategy to support their decision making.

“Harnessing expertise and collaborating with policy areas across the RBA, the new monetary policy strategy team will ensure sound policy advice is delivered to the board,” it said.

Having joined the RBA last year, Beechey Österholm has previously held influential positions in monetary policy and financial markets, including as a senior adviser of Sveriges Riksbank’s monetary policy department, in addition to being an economist for the Federal Reserve board’s monetary affairs division.

Aggregators react

Reacting to the decision, the CEO of broking franchise Mortgage Choice, Anthony Waldron, noted that while “many were hoping to see a cut to the cash rate this month”, the quarterly CPI data showed that underlying inflation “remains high” while employment and participation rates are “at record highs”, which he said “could put upward pressure on inflation”.

“While the prospect of a cash rate cut remains on the horizon, I expect the RBA will want to be more confident that inflationary pressures have eased before making that call,” Waldron said.

Eleanor Creagh, REA Group’s senior economist, added that the central bank would likely hold the cash rate for the near future “unless an external shock, higher unemployment or lower underlying inflation occurs”.

“Slowing employment and inflation may prompt rate cuts from February 2025, but the resilient labour market and stickier components of inflation could delay this timeline,” Creagh said.

Similarly, Connective’s executive director, Mark Haron, said he didn’t expect to see any changes to the cash rate until 2025.

He said: “The RBA’s decision to hold the cash rate is good news for now but continues to keep borrowers in a tough lending environment.

“With recent inflation pressures easing only gradually and underlying pressures remaining, it’s unlikely we’ll see rate cuts before next year – making trust between brokers and borrowers even more important.”

The aggregator heads flagged that borrowers should be reaching out to mortgage brokers to ensure they are accessing the right lending products for them.

Waldron encouraged prospective home buyers to meet with a mortgage broker to ensure they understand their borrowing power and “can make an offer with confidence” and for those with a loan older than a year old to seek a broker’s help to ensure their loan is “still the best option for [them]”.

Haron said: “As we approach year-end, and people generally prepare for a new year, including reviewing finances, it’s an opportunity for brokers to proactively connect with clients, keep communication open and help them understand their options.

“With a potential rate cut early in 2025, brokers should be prepared to discuss how each bank may pass on that cut, tailoring advice to best support clients’ long-term financial goals.

“Success happens when brokers connect at the right time, use the right tools, and demonstrate knowledge, value and alignment with clients’ needs.”

The CEO of aggregation group Finsure, Simon Bednar, said: “With the rate increases making conditions tougher for mortgage holders, brokers have already been helping customers deal with the higher rates and the cost-of-living crisis, and they will be in even more demand when the rate cycle moves down.”

However, he added that he was concerned that the banks may not pass on the reductions in full to borrowers when rates do start falling.

Bednar said: “Economists expect the RBA will be satisfied enough that underlying inflation has been brought under control to reduce rates in the first quarter of 2025.”

“I am concerned, however, that banks will find reasons to not pass on the reduction in full, which will not help ease the pain for borrowers doing it tough on higher rates.

“That’s where brokers will further prove their value and play a key role in assisting customers and alleviating their pain.

“Brokers can take their customers through all the options open to them whether that be refinancing or improving the terms of the existing loan.”

[Related: RBA unlikely to cut the cash rate this year, say economists]