rba rate cut

What’s Next for Aussies After the RBA’s Latest Rate Cut Decision?

For millions of Australian homeowners and renters, the Reserve Bank of Australia’s (RBA) decisions on interest rates are more than just numbers on a screen – they’re a direct hit to the hip pocket. Right now, the nation is holding its breath as inflation, economic growth, and cost-of-living pressures collide in a high-stakes waiting game.

The latest news? Rate cut hopes have been dashed – at least for now. Despite widespread anticipation of relief, the RBA has sent a clear message: inflation is still too hot, and rate cuts aren’t on the table… yet.

But what does this mean for your mortgage repayments, your savings, and the broader economy? And when – or if – that elusive rate cut might finally arrive?

Let’s unpack the latest developments, what’s driving the RBA’s stance, and what Aussies can expect in the months ahead.

The Big Story: No Rate Cut in Sight – For Now

As of late October 2024, the RBA has held the cash rate steady at 4.35%, dashing hopes of a pre-Christmas rate cut that many economists and borrowers had been banking on. This decision comes amid hotter-than-expected inflation data and a central bank that remains firmly focused on taming price pressures before offering relief.

“Hotter-than-expected inflation would put the RBA in a difficult spot,” reports the ABC, highlighting the tension between household financial stress and the bank’s mandate to maintain price stability.

The Australian Financial Review (AFR) echoed this sentiment, stating that “rate cut hopes have been dashed after RBA’s blunt inflation message.” The central bank has made it clear: no rate cuts will be considered until inflation is sustainably within its 2–3% target band.

Meanwhile, The Australian notes that the next inflation print – due in late November – will be crucial in determining whether the RBA delivers a long-awaited interest rate relief on Melbourne Cup Day, a symbolic date in Australia’s economic calendar.

Recent Updates: A Timeline of Key Developments

Here’s a breakdown of the most critical events shaping the current RBA rate cut narrative:

October 2024 – Inflation Data Surprises to the Upside

• The latest Consumer Price Index (CPI) for Q3 2024 showed inflation at 3.8% year-on-year, higher than the RBA’s forecast of 3.5%.
• Core inflation (trimmed mean) remained sticky at 3.6%, suggesting underlying price pressures are still strong.
• This data was the final nail in the coffin for near-term rate cut speculation.

October 28, 2024 – RBA Holds Rates Steady

• The RBA’s October monetary policy decision confirmed the cash rate remains at 4.35%.
• The accompanying statement emphasized “further progress is needed” to bring inflation down sustainably.
• The bank noted “upside risks” to inflation from strong domestic demand and resilient labour markets.

Late October – Market Reacts

• Financial markets priced out any chance of a rate cut in 2024.
• The Australian dollar strengthened slightly as expectations for a 2025 rate cut were pushed into the second half of the year.
• Mortgage holders saw no relief from lenders, with most banks holding variable rates steady.

November 2024 (Upcoming) – The Next Inflation Test

• The October CPI data (released late November) will be the next major test.
• If inflation shows a clear downward trend, the RBA may signal a possible cut in early 2025.
• A surprise uptick, however, could delay cuts well into 2025 – or even beyond.

Why This Matters: The RBA’s Tightrope Walk

The RBA is walking a tightrope between two urgent priorities:

1. Taming inflation – The bank’s primary mandate is price stability. If inflation stays above target, it risks becoming entrenched, making future cuts harder.
2. Supporting households – With average mortgage repayments up over 50% since 2022, many Aussies are feeling the pinch. A recent ASIC report found that 1 in 5 mortgage holders are at risk of default.

The RBA’s current stance reflects a “higher for longer” approach – a strategy seen globally, including in the US and UK. But in Australia, the stakes are uniquely high.

“The RBA is caught between a rock and a hard place,” says Dr. Sarah Hunter, former RBA economist and now Chief Economist at KPMG Australia. “They know households are hurting, but cutting too soon could undo all the progress made on inflation.”

This balancing act isn’t new. In the 1990s, the RBA faced similar pressures during the early days of inflation targeting. Back then, it held rates high for over a year before inflation finally cooled – a precedent that may be repeating.

Context: How Did We Get Here?

To understand the current rate cut debate, it helps to look back at the past two years of economic turbulence.

2022–2023: The Rapid Hike Cycle

• In May 2022, the RBA began a series of 13 rate hikes, lifting the cash rate from a record-low 0.1% to 4.35% in just 18 months.
• This was the fastest tightening cycle in RBA history, aimed at cooling inflation that had surged to 7.8% in late 2022.
• While inflation has since fallen to 3.8%, it’s still above target, and progress has stalled in recent quarters.

The Inflation Drivers

Several factors have kept inflation sticky: - Strong wage growth – The Fair Work Commission’s 5.75% minimum wage increase in 2023 and ongoing enterprise bargaining have pushed up labour costs. - Housing costs – Rents are rising at over 8% annually, driven by low vacancy rates and high immigration. - Services inflation – Prices for haircuts, education, and hospitality remain elevated, showing broad-based price pressures.

The RBA’s Credibility

The RBA has been under scrutiny for its forecasting accuracy. In 2023, it predicted inflation would fall to 3% by mid-2024 – a target it has missed. This has led to public and political pressure, with some calling for a review of the bank’s independence and forecasting methods.

Immediate Effects: Who’s Feeling the Heat?

The delayed rate cut has immediate consequences across the economy:

1. Mortgage Holders

• Over 2 million variable-rate borrowers are paying $1,500+ more per year than they were in 2022.
• Fixed-rate loans are now expiring, pushing many into higher variable rates – a phenomenon known as the “mortgage cliff”.
• Some are refinancing, while others are downsizing or delaying major purchases.

2. Renters

• Landlords are passing on higher borrowing costs, leading to record rent increases.
• The Renters and Housing Union reports a surge in hardship applications, with many renters spending over 30% of income on housing.

3. Businesses

• SMEs are facing higher loan costs, reducing investment and hiring.
• Consumer spending is softening, with retail sales flatlining in Q3 2024.

4. Government

• The federal government is under pressure to boost cost-of-living support, including energy rebates and rental assistance.
• State governments are expanding first-home buyer schemes and build-to-rent initiatives.

5. Financial Markets

• The ASX 200 has been volatile, with banks underperforming due