RBA holds interest rates: What it means for mortgage holders

• Reserve Bank leaves rates on hold at 4.35 per cent
• Governor Michele Bullock hinted at another rate rise 
• READ MORE: Why rate cuts could be delayed to 2025 

The Reserve Bank has issued a chilling warning for every Australian home borrower who was hoping for some mortgage rate relief in coming months.

The cash rate was left on hold at a 12-year high of 4.35 per cent on Tuesday afternoon but Governor Michele Bullock warned even more rate rises are still possible – dealing a fresh blow to those holding out for a rate cut any time soon.

‘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,’ she said.

‘Returning inflation to target within a reasonable timeframe remains the board’s highest priority.’

Ms Bullock doubled down with an inflation warning at a media conference as 3.8million households with a mortgage battle a cost of living crisis.

‘The war isn’t yet won, so we continue to be vigilant and we can’t rule anything in or out,’ she said.

‘We’re not confident enough to say we can rule out further interest rate changes.

‘The possibility of a rate rise is something that the board might consider in terms of, “Well, are we at the right spot?”.’

The Reserve Bank has issued a chilling warning for every Australian home borrower (pictured is a Sydney auction)

The major banks and economists had been expecting rate cuts in 2024 as inflation moderated.

But Ms Bullock said inflation was still too high, even though interest rates were kept on hold for the third straight RBA meeting.

‘While recent data indicate that inflation is easing, it remains high,’ she said.

‘The board expects that it will be some time yet before inflation is sustainably in the target range.’

Ms Bullock said the conditions for a rate cut had yet to be realised before monetary policy can be eased for the first time since November 2020.

‘What we need to consider a rate cut is really to be much more confident that inflation is coming back into the band in the future,’ she said.

‘If we were to see some acceleration and get some more confidence that we are overachieving there, then possible rate cuts might be something on the agenda but at the moment, we’re not seeing that.

‘We’re in a position where we’re cautious, we want to wait and see. As I said, risks on both sides.’

Monthly inflation data showed the consumer price index at 3.4 per cent in January, which is only marginally above the RBA’s 2 to 3 per cent target.

But the more comprehensive quarterly CPI data had annual headline inflation at 4.1 per cent in December.

The Reserve Bank is not expecting inflation to fall within its 2 to 3 per cent target band until December 2025.

The cash rate was left on hold at a 12-year high of 4.35 per cent on Tuesday afternoon but Governor Michele Bullock warned more rate rises were possible – dealing a fresh blow to those hoping for a rate cut soon

Ms Bullock warned inflation could stay high unless workplace productivity improved to justify faster wages growth.

Australia’s hourly productivity levels last year shrunk by 0.4 per cent – a far cry from the long-run average levels above 2 per cent.

‘Nevertheless, this level of wages growth remains consistent with the inflation target only on the assumption that productivity growth increases to around its long-run average,’ she said.

The RBA’s 13 rate rises in 18 months, between May 2022 and November 2023, marked the most aggressive pace of monetary policy tightening since 1989.

A borrower with an average $615,178 mortgage is now paying $16,728 more a year in repayments, compared with May 2022 when the RBA cash rate was still at a record-low of 0.1 per cent.

The rate rises have slowed the economy with gross domestic product expanding by just 0.2 per cent in the December quarter.

Australia’s annual growth pace of 1.5 per cent in 2023 was almost half the 2.7 per cent level of 2022.

‘While there are encouraging signs that inflation is moderating, the economic outlook remains uncertain,’ Ms Bullock said.

‘The December quarter national accounts data confirmed growth has slowed.’

Australia hasn’t experienced a recession since the 2020 Covid lockdowns but it has been in a per capita recession since the March quarter of last year, where output per worker has been shrinking.

The Commonwealth Bank’s head of Australian economics Gareth Aird noted the RBA’s language had softened with the phrase, ‘The board is not ruling anything in or out’.

‘The board has moved from a mild tightening bias to a neutral one,’ he said.

Ms Bullock on Tuesday admitted: ‘We have changed the language, that’s true but that was in response to some data which has demonstrated to us that we are still broadly on the path we thought we were on.’

Ms Bullock warned inflation could stay high unless workplace productivity improved to justify faster wages growth (pictured is a Sydney waitress)

Stephen Smith, a partner with Deloitte Access Economics, said the Reserve Bank would have to cut rates in September to stimulate with a slowing economy.

‘Slow economic growth, and a rising unemployment rate, partly offset by the support of tax cuts from 1 July, along with decelerating inflation, means a pivot from containing inflation to stimulating growth will need to occur in 2024,’ he said.

The RBA is now meeting eight times a year rather than on the first Tuesday of every month except January.

Ms Bullock is now holding a media conference, following a two-day board meeting on monetary policy.

The next Reserve Bank board meeting will be on May 6 and 7.

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