This article is from the Australian Property Journal archive
THE Reserve Bank has again kept interest rates on hold, but its governor Michele Bullock warned of a “bumpy” road ahead as fresh economic data raises the prospect of a return to rate hikes.
The official cash rate remained at 4.35%, in line with most forecasts. However, the shift in tone at the board’s previous meeting that was described as “dovish” by analysts had changed.
“We believe we have rates at the right level to return inflation to the target range next year, but as we said in the past, getting inflation back to target will take time. And I think the path will likely continue to be bumpy, and we should all be prepared for that,” Bullock said at the now-customary post-board meeting press conference.
“We must continue to be vigilant about the continued risk of high inflation.”
Some analysts had already pivoted to expecting the RBA’s next move on rates would be more likely a hike than a cut following April’s consumer price index (CPI) data that showed inflation was remaining stubbornly high.
Inflation could be pushed higher in the coming months due to high petrol prices and a tight jobs market, the RBA warned. The RBA has lifted its expected headline inflation forecast for the end this year higher at 3.8% than it was in the March quarter, at 3.6%.
“Recent data indicate that, while inflation is easing, it is doing so more slowly than previously expected and it remains high,” the RBA said in its post-meeting statement.
“The board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks. 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.”
ANZ head of Australian economics and economist Madeline Dunk said the RBA board took the post-meeting statement in a “slightly more hawkish direction”, albeit “less hawkish than we’d expected”, while the near-term upward revisions to the inflation forecasts are larger than they had tipped.
“We are conscious about reading too much into RBA forecasts and communication. Still, the combination of the less hawkish than expected language in the post-meeting statement and the larger than expected upward revisions to the RBA’s inflation forecasts over the next few quarters implies the hurdle to another hike could be higher than markets have been expecting heading into this meeting,” the economists said.
ANZ’s forecast remained unchanged, favouring November for the start of the easing cycle, although the risks remain skewed toward that being delayed into 2025 and being shallower expected.
Harry Murphy Cruise of Moody’s Analytics said the firm had expected the first rate cut to come in September, but, “Increasingly, it’s looking like we’ll have to wait until December”.
“Australia is joining a growing list of economies proving that the final mile of bringing down inflation is the hardest.”
He said risks include the looming stage-three tax cuts due to start in July, which will “add money to the economy at the same time as the RBA is trying to take it out”, while some progress on inflation has come from temporary government rebates that will eventually unwind.
“Those aren’t deal-breakers for the RBA, but they will delay rate cuts.”
Shadow treasurer Angus Taylor laid some blame on the Albanese government for the difficult economic data.
“If the Reserve Bank has the foot on the brake, it’s necessary, because the government has had its foot on the accelerator and frankly, what you end up with is a situation where you wreck the engine,” shadow treasurer Angus Taylor said.
“We need a budget next week that fights inflation first, until you beat inflation, the rest simply can’t follow, and this government has consistently failed to put in place the policies that beat inflation.”
Mortgage Choice CEO Anthony Waldron said the decision to keep the cash rate on hold will be welcomed by borrowers who are hoping for cost-of-living relief when the federal budget is handed down on Tuesday.
“While the latest inflation data may have dashed borrowers’ hopes of a cash rate cut in the near future, I suspect the RBA will wait to see the federal budget and June quarter CPI before considering any changes to the cash rate.”
Australian Retailers Association CEO, Paul Zahra said the rate decision would provide a hint of relief for retailers as economic challenges continue to dampen discretionary spending and consumer confidence.
“At a time of immense financial pressure and hardship for many Australians and retail businesses – avoiding another cash rate increase is critical to consumer confidence.”
