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The RBA made a widely expected decision to keep Australia’s cash interest rate on hold at 4.35% in December as it seeks to return inflation to a level that is sustainably within its target 2% - 3% range.
The timeline for rate cuts has extended largely as a result of the current underlying inflation rate, rather than CPI, which is still sitting outside the RBA’s target inflation rate at 3.5%.
The RBA’s statement accompanying its decision said inflation had fallen substantially since the peak in 2022, as higher interest rates brought aggregate demand and supply closer towards balance.
However, the RBA pointed out that “measures of underlying inflation are around 3.5 per cent, which is still some way from the 2.5 per cent midpoint of the inflation target”.
In the statement, the RBA said the most recent forecasts “do not see inflation returning sustainably to the midpoint of the target until 2026”.
“The Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts, but risks remain,” the RBA statement said.
GA Finance Solutions director Grant Arbuckle (pictured left) said the decision aligned with general expectations and reflected the RBA's ongoing caution about inflation and broader economic stability.
“While disappointing for homeowners hoping for relief prior to Christmas, it’s a pragmatic move given the lingering pressure of high underlying inflation,” he told Australian Broker.
Arbuckle said that, while the decision “seems to be the right call in the current climate”, he was aware that it is not what homeowners - including himself - personally wanted to hear.
“While inflation has moderated, the RBA is justifiably hesitant to act prematurely,” he said. “For customers, this means continued financial pressure, particularly for those on variable rate mortgages.”
Firstbroker’s Jamison Banham (pictured centre) said he was “not surprised to see the RBA hold rates today”.
“I view the RBA decision to hold the cash rate as a measured response to the current economic landscape,” he said.
“The decision to maintain the current rate suggests the RBA is carefully balancing inflationary pressures with economic growth.”
Banham said the decision showed the RBA’s commitment to ensuring that inflation continues to decrease without adding further strain on households and businesses.
While the RBA’s decision was expected, brokers are seeing borrowers under pressure as they wait for the RBA to follow through with a widely expected next move downward in the cash rate.
Borg Financial director Chris Borg (pictured right) said he thought Australians were “continuing to feel the heat”.
“Families with kids are already feeling the pressure, especially with the rising living costs,” he said.
“With Christmas around the corner it will be interesting to see how retail spending will be with no room to breathe from the RBA.”
Borg said there was an expectation of a rate cut soon, and, in the meantime, customers were likely to continue to restrict what they were spending on.
“Customers are going to continue to be more cautious on their spending habits; they will be prioritising essentials over luxuries,” Borg said.
Banham said “cost-of-living pressures remain a concern for many households”, with many of his clients opting to stay on variable rates as they expect the next RBA move to be down.
“Most of my clients monitoring the RBA hoping for a decrease are first home buyers who purchased during the low rate period and are now grappling with significantly higher repayments,” he said.
Arbuckle said that today’s RBA decision should be a signal to borrowers of the importance of reviewing their current loan arrangements.
“There may still be opportunities to secure better rates or restructure debt to manage cash flow more effectively,” he said.
It is possible borrowers may need to wait until April or May for an anticipated rate cut, he said, barring significant changes in inflation or unemployment.
“The trimmed mean inflation measure remains above target, and the [RBA] board has emphasized the need for sustainable inflation trends before easing,” he said.
“A delayed but measured reduction would provide relief while maintaining economic stability.”
Borg is also hoping for some movement around the end of the first quarter of 2025. He warned that holding rates longer – or even hiking them further - could be “asking for Aussies to struggle”.
“We may see an increase or spike in default rates and arrears will be more significant,” he said.
