RBA Holds Interest Rates Steady Amid Stubborn Inflation Concerns

Amid growing concerns over stubborn inflation, the Reserve Bank of Australia (RBA) has decided to hold interest rates steady, disappointing struggling families hoping for relief. The decision comes after the release of stronger than expected Q1 2024 inflation numbers, reaching 3.6%, causing a major shift from earlier predictions of rate cuts this year.

Economist Saul Eslake of Corinna Economic Advisory, an advisory panel member of the Australian Parliamentary Budget Office, emphasized that the recent Consumer Price Index data has dampened hopes for rate cuts in 2024. Eslake pointed out that due to delayed rate hikes compared to global peers, the RBA may delay any rate cuts, especially with upcoming wage rises, tax cuts, and government spending.

Cameron Kusher from the REA Group shared a similar sentiment, suggesting that while a rate hike might not be imminent, the possibility of rate cuts has been pushed further out. The market is likely to see the RBA adopt a more cautious approach given the present economic indicators.

Pete Wargent of AllenWargent Property Buyers highlighted the likelihood of interest rates remaining unchanged throughout 2024, with the market reflecting a similar sentiment. Wargent noted a shift towards more cautious behavior among homebuyers, potentially delaying any buying frenzy spurred by hopes of rate cuts to 2025.

In a survey conducted by Finder on the RBA Cash Rate, all 36 experts and economists anticipated the RBA to maintain the rate at 4.35% in May. Graham Cooke, head of consumer research at Finder, reiterated the significance of inflation in the RBA’s decision-making, indicating a rate cut is unlikely until late 2024 at the earliest.

The ASX 30 Day Interbank Cash Rate Futures market exhibited a 3% expectation of a rate increase to 4.6% at the upcoming RBA meeting, although industry experts and markets widely predict the rate to remain steady at 4.35%. The last time interest rates were at this level was over 12 years ago.

Tim Reardon, chief economist at the Housing Industry Association (HIA), warned that factors like strong population growth, low unemployment, and elevated housing costs would impede the return to the RBA’s target inflation range. Harry Murphy Cruise of Moody’s Analytics forecasted inflation to end 2024 at 3.2% and not return to the target band until the first half of 2025.