What's happened
Australia's annual inflation rate fell to 2.8% in the September quarter, the first time below 3% in over three years. Despite this, the Reserve Bank of Australia (RBA) has kept interest rates on hold at 4.35%, citing persistent underlying inflation concerns. Economists predict potential rate cuts in early 2025.
What's behind the headline?
Current Economic Landscape
- Inflation Trends: Australia's inflation rate has decreased to 2.8%, but underlying inflation is still at 3.5%.
- RBA's Position: The RBA is cautious, indicating that while headline inflation is within target, underlying pressures persist.
Future Rate Predictions
- Potential Cuts: Economists from major banks forecast a 0.25% cut in February 2025, but market expectations suggest cuts may not occur until April 2025.
- Economic Indicators: The RBA's decision reflects a broader economic strategy to ensure sustainable inflation control.
Implications for Homeowners
- Impact on Borrowers: Homeowners hoping for relief before Christmas may be disappointed as the RBA's stance indicates no immediate rate cuts.
- Long-term Outlook: The RBA's focus on underlying inflation suggests that significant rate cuts may be delayed, affecting mortgage holders and borrowers in the near future.
What the papers say
According to Rashida Yosufzai from SBS, the RBA's decision to keep rates steady is influenced by the need to address underlying inflation, which remains too high despite the drop in headline inflation. Sally Tindall from Canstar echoed this sentiment, stating that the current inflation figures are misleading due to temporary factors like electricity rebates. Meanwhile, economists from the big four banks predict potential rate cuts in early 2025, but the market is skeptical, with many not expecting cuts until later in the year. This uncertainty is compounded by the RBA's commitment to returning inflation to its target range sustainably, as highlighted in multiple reports from SBS.
How we got here
The RBA has maintained a cash rate of 4.35% since November 2023, emphasizing that inflation must be within a 2-3% range for any cuts. Recent inflation data shows a decline, but underlying inflation remains a concern.
Go deeper
- What factors influence the RBA's decisions?
- How will this impact mortgage holders?
- What are economists predicting for 2025?
More on these topics
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The Reserve Bank of Australia is Australia's central bank and banknote issuing authority. It has had this role since 14 January 1960, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank.
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Michele Bullock (born 1962/1963) is an Australian economist who is currently governor of the Reserve Bank of Australia (RBA). She commenced as governor on 18 September 2023, and is the first woman to hold the role.
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Australia, officially known as the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands.