Millions of home borrowers have been told to forget about more rate cuts because inflation is in danger of climbing again.
The Reserve Bank last month cut interest rates for the first time since November 2020 but the minutes of that meeting, released on Tuesday, suggested the board had little enthusiasm to keep cutting rates.
‘They emphasised that the decision at this meeting acknowledged the progress that had been made in reducing inflation while not committing the board to ease policy further,’ the minutes said.
The RBA minutes also suggested the cash rate could stay at 4.1 per cent for an extended period, or even go up again.
‘If the evolving data signalled that inflation was proving more persistent than expected, it would be reasonable to maintain a more restrictive stance of policy by holding the cash rate at 4.1 per cent for an extended period – given members’ assessment that this level would still be restrictive – or by even tightening policy if the outlook was for inflation to rise materially,’ it said.
The Reserve Bank on February 18 also released new forecasts having headline inflation climbing up to 3.7 per cent by late 2025, up from 2.4 per cent in the December quarter, following the expiry of the federal government’s $300 electricity rebates.
The consumer price index is now at a three-year low and firmly within the Reserve Bank’s two to three per cent target.
The Reserve Bank’s latest signal contradicts financial markets, which are expecting more rate cuts.
The Reserve Bank last month cut interest rates for the first time since November 2020 but the minutes of that meeting, released on Tuesday, suggested the board had little enthusiasm to keep cutting rates (pictured is Governor Michele Bullock)
Westpac and the Commonwealth Bank are expecting three more rate cuts that would take the cash rate back to 3.35 per cent for the first time since March 2023.
But the Reserve Bank minutes noted Australia’s previous cash rate of 4.35 per cent, following the 13 hikes in 2022 and 2023, was lower than most other advanced economies.
‘Members observed that not having lifted interest rates as high as in countries that had faced a similar inflation challenge meant the board should be cautious when deciding to lower the cash rate,’ it said.
The RBA’s existing 4.1 per cent cash rate, however, is still much higher than Canada’s equivalent policy rate of 3 per cent, following six cuts there since last year.
It is also lower than New Zealand’s 3.75 per cent cash rate, following four cuts across the Tasman.
