RBA leaves interest rates unchanged at 4.35%


The Reserve Bank has kept interest rates on hold for a fourth consecutive meeting, meaning the official cash rate will remain at a 12-year high of 4.35% for at least another six weeks until the board meets again in June.

Last month the Australian Bureau of Statistics released its latest inflation figures for the March quarter which revealed a 3.6% increase in the Consumer Price Index (CPI) over the year.

While the annual rate of inflation has been trending down, the latest figures surprised many economists on the upside and reinforced the case that inflation - and services inflation in particular - is proving to be more stubborn than expected.

The RBA has held the cash rate at its May meeting. Photo: Getty Images.

In its post-meeting statement, the board noted the continued stubbornness of inflation and advised that it might take some time before it returns to its target range of 2-3% - a journey that it says is unlikely to be smooth.

"Recent data indicate that, while inflation is easing, it is doing so more slowly than previously expected and it remains high.

"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."

Rate cut predictions pushed back

So has the latest inflation data poured cold water on the prospect of an interest rate cut in the immediate future? Some economists seems to think so.

In the lead up to the Reserve Bank's meeting in March, a survey of economists and other experts conducted by Finder found that 43% of respondents were anticipating a rate cut before September.

That dropped to just 8% in the survey taken before today's meeting. In fact, two in three respondents told Finder that they expect the RBA Board to wait until at least December before reducing rates for the first time this cycle.

"Australia is joining a growing list of economies proving that the final mile of bringing down inflation is the hardest," says Harry Murphy Cruise, an economist at Moody's Analytics and one of the survey respondents.

"Having sprinted lower in the back end of 2023, headline inflation is struggling to keep that momentum going. Inflation will keep easing from here, but progress will be slow.

"We had expected the first rate cut to come in September. Increasingly, it's looking like we'll have to wait until December."

At least one of the major banks appears to be thinking along similar lines.

Following the release of the latest inflation data, the Commonwealth Bank pushed its rate cut forecast back from September to November, with the bank now expecting just 25 basis points worth of cuts this year instead of 75.

The Reserve Bank Board will meet again on June 17-18 after which it will release its next decision on monetary policy.

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.