First RBA decision of 2024 sees interest rates kept on hold

Interest rates have been kept on hold at at 4.35 per cent in the first Reserve Bank of Australia (RBA) decision of 2024.

The RBA’s Monetary Policy Decision, announced Tuesday (6 February), centred its focus on inflation, which it said was still high at 4.1 per cent but dipped lower than its November forecasts had predicted.

The decision will go some way towards easing concerns among borrowers that rates could be lifted one more time before easing later in the year

The RBA’s minutes, however, hinted that any interest rate cut was still not on their short-term radar and even suggested a rise was not out of the question.

“While recent data indicate that inflation is easing, it remains high and the Board expects that it will be some time yet before inflation is sustainably in the target range.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.”

The minutes noted that the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market.

The decision to hold was widely expected, with most commentators expecting a wait and see attitude to prevail at the RBA.

Tomasz Wozniak, Senior Lecturer at the Department of Economics, University of Melbourne, said his short-term forecasts are clearly centred around inflation.

“My reading of these results is that the RBA will hold the cash rate at the current value to push the inflation down more.

“I expect the first interest rate cuts by mid-2024.”

Economics specialist and Associate Professor at Sydney University, Stella Huangfu, said rates would stabilise in the short-term at least.

“It is clear from the recent CPI data that inflation is easing in Australia and the RBA will keep the interest rate on hold for the next two meetings.”

Harry Murphy Cruise, an economist at Moody’s Analytics, differed from many commentators who expected a mid-year interest rate cut.

“Australia's fight against inflation is coming along in leaps and bounds, giving the RBA some breathing room before they cut rates later in the year but progress will slow through 2024, as looming tax cuts will hand cash back to households at the exact same time the RBA is trying to take money out of the economy.

“That will delay Australia's first rate cut until September.”

‘Higher interest rates are working’

The RBA has brushed off any criticisms that interest rates are doing more harm than good to the economy.

The central bank hasn’t shown any proclivity towards rushing to cut rates, arguing Australia’s tightening cycle lags other advanced economies.

Zippy Financial Director, Louisa Sanghera, said the steepness of the drop in inflation showed the central bank was “trigger happy on rate hikes”.

“Borrowers had to cope with the most rapid rate of interest rate increases on record as the Reserve Bank pumped up repayments, almost in a frenzy, without giving mortgage-holders the benefit of allowing much time to pass between each increase,” Sanghera said in arguing for an immediate rate cut.

RBA Governor Michele Bullock and her Board have remained unmoved.

“Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy.

“Accordingly, conditions in the labour market continue to ease gradually, although they remain tighter than is consistent with sustained full employment and inflation at target.

“Wages growth has picked up but is not expected to increase much further and remains consistent with the inflation target, on the assumption that productivity growth increases to around its long-run average.

“Inflation is still weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.”

Tellingly, the RBA’s central forecasts are for inflation to return to the target range of 2–3 per cent in 2025, and to the midpoint in 2026. 

It all points toward any rate cut being kept at bay until at least the back end of 2024.

Economists at the nation’s Big Four banks are in agreement about the likelihood of a rate cut this year, with ANZ, NAB, CBA and Westpac all saying the RBA has reached the end of its hiking cycle and a cut is on the cards.

CBA is the most bullish of the Big Four, predicting three cuts this year, with the first to arrive in September. Westpac predicts two cuts, to begin as early as August, while NAB is tipping there will be only one cut in November. ANZ also believes there will only be one cut, to take place some time in the last few months of the year.

RBA to meet less frequently

Tuesday’s interest rate decision was the first under the new RBA yearly meeting schedule.

Starting from this month, the RBA Board will only meet eight times a year, instead of 11 and no longer on the first Tuesday of the month.

The RBA Board won’t be meeting in April, July and October, as well as its usually January break.

Economist from RMIT University, Dr Nataliya Ilyushina, said less frequent meetings by the RBA may mean the rate changes could be more drastic each time.

“On one hand, if they do not raise the rate there will still be little relief on the cost of living such as rising grocery prices, petrol and other essentials.  

“On the other hand, if they continue to raise it the homeownership dream will continue to be a nightmare for many. 

“While the newly introduced tax cuts are designed to ease some financial strain on lower income households, they are barely going to offset the cost of living pressures felt by the masses.   

“Many of the cost of living increases are non-discretionary, meaning people don’t have a choice about where they feel the pinch.  

“Hopefully, the RBA can work out a balance that will eventually see both inflation and rate decrease – or at least slow down – in the coming years, if not months.  

“Additionally, it will be interesting to see if the government’s report on price gouging will prompt any drastic changes to the cost of groceries, electricity and airfares,” Dr Ilyushina said.