The country’s 3.8 million mortgage holders saw no relief Tuesday, as the Reserve Bank of Australia held interest rates at 4.35 per cent, unchanged now for seven months in a row.
As was widely expected by economists, the RBA board at its two-day June meeting held the cash rate at a 12-year high, again warning Inflation was easing but “has been doing so more slowly than previously expected” and remains high.
The RBA has lifted interest rates 13 times since 2022 to try to tame inflation which remains stubbornly above the bank’s 2 per cent to 3 per cent target.
But in a post-meeting statement the board said it expected it would be some time yet before inflation was sustainably in the target range.
And in an ominous warning it said recent data had demonstrated the process of returning inflation to target is unlikely to be smooth.
“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out.
“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 hawkish approach comes as two major central banks cut their official policy rates this month.
The easing of the global cycle began in March when the Swiss Central Bank cut rates, followed two months later by Sweden. This month, the Bank of Canada and the European Central Bank (ECB) have each made rate cuts of 25 basis points.
The US is on track for an interest rate cut in September with the United Kingdom looking at that month as well, possibly as later as November.
Which would make Australia one the last of the major central banks to make cuts.
AMP chief economist Shane Oliver attributes that to the global pandemic, when Australia was slow to fully reopen compared with other countries.
“So therefore, our inflation rate picked up a little bit later than other countries” Oliver told The Urban Developer.
“Our inflation rate did not reach its peak until the end of 2022 whereas the US got to its peak in June of 2022.
“So other countries were three to six months ahead of us in terms of their inflation cycles on the way up and their tightening cycles, which means we're lagging on the way down as well.
“I don't think it necessarily reflects some sort of failure in Australia which is what a lot of economists like to say.”
The consensus among economists is that rate hikes are finished and the next move from the RBA will be down, but the timing remains highly uncertain.
Oliver believes the first rate cut will be in November or December. Others point to early next year.
The Reserve Bank board next meets early in August.
