The Reserve Bank of Australia considered hiking interest rates at its latest board meeting as inflation proves trickier to rein in than expected.
The minutes from the RBA’s latest board meeting revealed the decision to hold interest rates steady in May was not a straightforward one, with members pondering both a hike and a hold.
But in a blow to households hoping for interest rate relief, a rate cut was not discussed.
The RBA has not ruled out another rate hike if inflation remains stubborn. Picture: Getty
It comes as recent data shows inflation is not slowing as quickly as expected, with the Consumer Price Index (CPI) rising 1% during the March quarter to take the annual rate to 3.6%, still higher than then RBA’s 2-3% target range.
In considering the decision, the board noted that recent economic data had been “stronger than expected” and “inflation had declined more slowly than anticipated”.
On balance, the RBA held the cash rate steady at a 12 year high of 4.35% in May, but hasn’t ruled out a future increase if inflation remains stubbornly high.
Market activity has been fuelled by hopes for an interest rate cut this year, with strong listings activity and robust auction clearance rates across the country.
PropTrack data shows property prices reached a new record high nationally in April, with values up 6.6% over the past year.
But PropTrack director of economic research Cameron Kusher said shifting expectations around when the first cut may come could dampen momentum.
“I suspect a lot of owners and buyers were anticipating cuts this year and the pushing back of rate cuts could change the willingness of owners to sell, or it might necessitate them to sell, and the willingness of purchasers to buy,” Mr Kusher said.
“In my view we probably get rate cuts around March or April of next year.”
Current market pricing implies interest rates may not start to fall until the second quarter of 2025.
The RBA considered a rate hike at its latest meeting, but on balance held rates steady. Picture: Getty
HSBC chief economist Paul Bloxham said the recent federal budget also poses a risk to the outlook for interest rates, despite government measures to lower energy costs and rents.
“The Federal budget provided even more support than we had expected, and is more front-loaded than we had anticipated. This firms up our view that core inflation will remain sticky, making it even less likely that the RBA will consider near term rate cuts,” Mr Bloxham said.
He said that while more rate hikes seem ‘unlikely’, households shouldn’t expect interest rate relief any time soon, pushing back forecasts for the first cut to the second quarter of 2025.
“We see only a shallow easing phase in 2025, with the cash rate ending that year at 3.85%,” Mr Bloxham said.
“Higher for longer remains the central case – but, we now expect rates to be higher for even longer.”
Economists at the big four banks all expect interest rates will start to fall in November this year.
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