RBA leaves rates on hold but hints at future cuts

This marks the ninth consecutive time the central bank has kept the cash rate unchanged and marks more than a year since the cash rate last moved (it increased 25 basis points in November 2023).

The decision, which was announced on Tuesday (10 December), was broadly anticipated by economists and major banks as the central bank continues to work to bring inflation into its target band of 2-3 per cent.

The latest quarterly inflation figures showed that the consumer price index (CPI) returned to the target range for the first time in more than three years in the September 2024 quarter (at 2.8 per cent, or 3.5 per cent when looking at the trimmed mean), while the latest monthly inflation figures showed inflation at its lowest growth rate since July 2021, coming in at 2.1 per cent in October 2024.

In its statement following the rate decision, the RBA board said: "Measures of underlying inflation are around 3½ per cent, which is still some way from the 2.5 per cent midpoint of the inflation target.

"The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026. The board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts, but risks remain...

"The board will continue to rely upon the data and the evolving assessment of risks to guide its decisions. In doing so, it will pay 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 bank's board added that "while headline inflation has declined substantially" and would remain lower for a time, underlying inflation "remains too high".

RBA governor Michele Bullock stressed that she would not be giving forward guidance on when a rate change would be coming but hinted that the RBA was leaving the door open to a rate cut next year.

“Some of the economic data has been a bit softer, and it's also true that some of the nominal side, in particular inflation, is remaining quite elevated. So you've got two sets of data which are telling you possibly different things,” Bullock commented at a press conference following the announcement.

“Our forecast suggests that growth will start to pick up as real disposable incomes start to pick up over the coming year, and that inflation will continue to come down. So we still think we're on that path.”

Broking industry reacts

Commenting on the RBA decision to hold the cash rate, the CEO of aggregation group Finsure, Simon Bednar, said that with the likelihood of rate cuts in the coming year, brokers need to be prepared to assist mortgage holders looking to reduce their home loans.

“I think that 2025 will present positive tailwinds for brokers, with rate cuts more than probable,” Bednar said.

"Once there is some movement, consumers will be looking to reduce their mortgages, and I advise brokers to be prepared and well placed to take advantage of this. They need to be proactively managing/communicating with their customers in readiness for this.”

Similarly, Anthony Waldron, the CEO of major brokerage Mortgage Choice, said: “Although not the festive season gift borrowers were hoping for, the decision to leave the cash rate unchanged does not come as a surprise.

“It follows a warning from governor [Michele] Bullock that recent falls in headline inflation may be short-lived due to federal government rebates that have kept the price of energy bills low and put downward pressure on inflation.

“Until the Reserve Bank is satisfied that inflation can stay within its target of 2-3 per cent over a sustained period, households will have to hold out for the long-awaited cash rate cut.”

The executive director of aggregator Connective, Mark Haron, added: “This year has been defined by resilience for brokers navigating through a high-interest-rate environment, rates have held steady for months now, and this month’s decision is no different...

“As we step into 2025, there are many things that brokers need to consider – the anticipated rate cuts and the local and global economic and political landscape. Brokers should use this opportunity to get ahead of the curve and be prepared because clients are going to wonder how this will affect them, the financial decisions they will have to make, and what brokers are doing to help them.

“The key next year will be communication. Brokers who stay close to their clients, provide tailored advice, and leverage the right tools will be well-placed to guide them through a shifting market.”

When will interest rates go down?

All four of the major banks predicted that the cash rate will remain unchanged until next year.

Australia and New Zealand Bank (ANZ), National Australia Bank (NAB) and Westpac all pushed back their calls for the first rate cut from February 2025 to May 2025.

Only the Commonwealth Bank (CommBank) is maintaining its forecast of a rate cut in February 2025 (the next time the RBA meets to determine the cash rate).

In an Economics Daily alert, CommBank economist Harry Ottley said that a softer CPI figure for 4Q24 (due 29 January) could be “the ‘smoking gun’ that gives the green light for a February rate cut”.

Similarly, Finsure’s Bednar said the RBA could wait until the second quarter of 2025 before it believes inflationary conditions are right for interest rate cates.

“Given the RBA’s commitment to bring inflation inline to its 2-3 per cent target range, the industry forecast of a first reduction in February or March next year could now be pushed back to 2Q25,” he said.

“With Christmas putting further pressure on inflation with broad consumer spending and possible further pressure on wholesale electricity over summer, I think quarter two is a fair estimate.

“Furthermore, I feel the RBA will want to see sustained inflation within [its] target range and not just a single month’s result before committing to a rate cut.”

[Related: Third major bank moves rate call]