RBA sounds rate cut alarm after denying Aussies interest relief: 'Message is clear'

The Reserve Bank of Australia (RBA) has kept interest rates on hold at 4.35 per cent at its meeting today. The move means the cash rate will remain at its near 13-year high for a full 12 months, with mortgage holders warned not to expect relief any time soon.

RBA governor Michele Bullock reiterated an interest rate cut was not on the cards in the "near-term". However, she revealed the board did not "explicitly" consider an interest rate rise in the September meeting.

"The message clearly from the board is that in the near-term it does not see interest rate cuts," Bullock said.

FOLLOW LIVE UPDATES: RBA interest rate decision and fallout as it unfolds

RELATED

• RBA's interest rate decision challenged after China's major $141 billion move

• Royal Australian Mint responds after rare $2 coins 'worth $3,000' handed to Woolworths shoppers

• Tradie reveals $178,000 job with ‘heaps’ of work on offer: ‘Money to be made’

Bullock said she understood people were making "difficult decisions", including selling their homes due to high interest rates.

She noted the RBA only had "one instrument", which was "blunt" interest rates while the government had "more tools at its disposal".

In its post-meeting statement, the RBA board noted inflation was "proving persistent". While headline inflation came down in July, underlying inflation - which strips out volatile items like petrol - remained "too high".

The board said it would be "some time yet" before inflation was sustainably in the 2 to 3 per cent target range.

It noted headline inflation would "fall further temporarily" as a result of federal and state cost-of-living relief. However, it said inflation wasn't forecast to return to target until 2026.

RBA 'playing with fire'

Economist and Yahoo Finance contributor Stephen Koukoulas said the RBA was "playing with fire" by holding rates.

"I fear the RBA is falling further and further and further behind the curve," he said.

"We're probably going to be getting some very low inflation numbers over coming months and coming quarters.

"We're going to be getting weak GDP numbers over coming quarters, and we're going to get the unemployment rate continuing to increase."

The unemployment rate held steady at 4.2 per cent, dampening hopes for a rate cut in the short-term. The annual rate of headline inflation fell to 3.5 per cent in July, down from 3.8 per cent in June.

August inflation data will be released tomorrow, with the Treasurer expecting inflation to drop “quite substantially” with the impact of the government’s $300 energy rebates continuing to flow through.

CreditorWatch chief economist Anneke Thompson said the RBA was "unlikely to change course" and the first rate cut was "unlikely to be before the year is out".

"However, one soft unemployment report could change this thinking quite rapidly," she noted.

The US Federal Reserve’s decision to slash interest rates by 0.50 per cent last week has put the RBA under pressure to cut rates.

Bullock noted the board did consider other country's interest rates but wouldn't be swayed by this alone.

"Ultimately, we need to focus on setting monetary policy for what we think is best for the Australian economy," she said.

"The challenge is we haven't seen the same disinflation as they've seen overseas and ultimately that is the challenge for the Australian public, that's why people are hurting, it's inflation."

When will the RBA cut interest rates?

Commonwealth Bank expects the RBA to cut rates in December 2024. It thinks there will be five 0.25 per cent cuts by the end of 2025, taking the cash rate to 3.10 per cent.

Westpac thinks there will be a cut in February 2025, with four 0.25 per cent cuts in total to bring the cash rate down to 3.35 per cent.

NAB thinks it will be in May 2025, although it says February is possible, with five 0.25 per cent cuts down to 3.10 per cent.

ANZ has forecast a February 2025 cut, with three cuts in total to bring the cash rate down to 3.60 per cent.

More than two-thirds of experts and economists surveyed by Finder expect the first rate cut will come in the first three meetings of the year (February 18, April 1 and May 20).

About 44 per cent of those experts reckon the first cut will come in February.

Borrowers under ‘significant financial stress’

Finder head of consumer research Graham Cooke said many homeowners were now holding out for a cash rate cut, with its research finding two in five Aussies had less than $1,000 in savings.

Mortgage repayments have skyrocketed by about $1,562 per month on a $600,000 loan since the RBA started hiking rates in May 2022.

“Due to the sharp and rapid rise in mortgage repayments, millions of Aussies are under significant financial stress,” Cooke said.

“A whopping 40 per cent of homeowners say they are struggling to pay their home loan in September, according to Finder’s Consumer Sentiment Tracker.”

Roy Morgan’s latest data found 29.5 per cent of mortgage holders - or 1.6 million borrowers - were “at risk” of mortgage stress in the three months to August 2024.

This represents a slight 0.3 per cent decrease on July figures after the government rolled out its stage three tax cuts.

Get the latest Yahoo Finance news - follow us on Facebook, LinkedIn and Instagram.