Reserve Bank interest rates: Board keeps rates on hold for ninth consecutive meeting

There was no pre-Christmas relief for borrowers on Tuesday but the Reserve Bank has given a strong signal that an interest rate cut will be on the agenda next year.

Australia’s main cash rate was held steady at 4.35 per cent, where it has stayed for 13 months.

Yet Governor Michele Bullock revealed there had been a deliberate change in the central bank’s tone after a run of weak data in recent weeks.

“The board wanted to give the message that they have noticed some of the data (is) a bit softer. . . their views are evolving,” she told media in Sydney.

Economic growth was close to the lowest level in decades at just 0.8 per cent in the year to September. The slice for each person — GDP per capita — has been going backwards for almost two years.

But the RBA’s next move will crucially depend on whether inflation remains stubbornly above the target zone, or data shows further signs that rising prices are finally coming under control.

Ms Bullock said her bank will keep a close eye on numbers out in the next few months.

“We’re not saying that we’ve won the battle against inflation yet,” she said.

“But we’re saying we’ve got a little bit more confidence that things are evolving as (predicted) in our forecasts.”

It prompted big investment house Deutsche Bank to shift forward expectations of a rate cut by three months to February, which is the RBA’s next scheduled meeting.

Markets now judge a cut at that meeting more likely than not.

Also thinking the Reserve should move in February was AMP chief economist Shane Oliver, who pointed to weak growth and wages rising slower than predicted.

He said the central bank now sounded more “dovish” than six weeks ago, meaning the RBA is getting ready to ease pressure on borrowers.

“(The RBA’s) post meeting statement dropped references to ‘not ruling anything in or out’ and about the need for policy to remain restrictive,” he said.

“This is what would be expected if the RBA is preparing for eventual rate cuts.”

Moody’s Analytics, HSBC and ANZ all acknowledged the central bank’s change in tone but stuck with their calls that borrowers would most likely be waiting until May.

That came amid signs the economy was strengthening. HSBC’s Paul Bloxham said core inflation was falling slowly, the jobs market was stable, and retail sales was picking up — all of which suggest growth will improve next year.

Borrowers have been squeezed hard since the RBA started lifting rates in 2022 and the battle over cost of living will be crucial ahead of a Federal Election due before May next year.

Treasurer Jim Chalmers said “welcome and encouraging progress” was being made in the fight against inflation.

“The statement makes it clear that the board is gaining some confidence that inflation pressures are declining,” he said.

“There is a lot of global economic uncertainty, there is a lot of pressure on people right here at home, there is always a premium on responsible economic management but especially right now.”

But Shadow Treasurer Angus Taylor took aim at the government as State and Federal spending dominates economic activity.

“If this government had got its settings right, it would be easier for the Reserve Bank to reduce interest rates, and we’d already be seeing inflation back at a lower level,” Mr Taylor said.

“I mean, there is no question that Australia is at the back of the pack when it comes to dealing with inflation and getting interest rates down.”

All 32 experts surveyed by investor service Bloomberg had predicted the RBA would hold the cash rate in its final scheduled board meeting of 2025.