Reserve Bank did not consider 'explicit alternative' to rate hold

The official cash rate is unchanged at 4.35 per cent, after the Reserve Bank board met for the third last time this year.

The Reserve Bank governor said September's board meeting took a slightly different format than previous meetings, which meant the board did not consider an "explicit alternative" to a hold scenario.

The decision to keep interest rates on hold for the seventh consecutive meeting was widely predicted by economists, but they're split on when the first rate cut might arrive.

The Reserve Bank board said while inflation had fallen substantially since its 2022 peak, it was proving persistent.

Headline inflation declined in July and was expected to temporarily fall again as federal and state cost-of-living relief is rolled out, the board noted in its post-meeting statement.

"However, our current forecasts do not see inflation returning sustainably to target until 2026," the board said.

"In year-ended terms, underlying inflation has been above the midpoint of the target for 11 consecutive quarters and has fallen very little over the past year."

The Reserve Bank board reiterated returning inflation to the target band of 2 to 3 per cent was its priority.

"Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range," it said.

Michele Bullock speaks after decision
Reserve Bank governor Michele Bullock, who celebrated her first year in the top job this month, said the data released since the August meeting had not materially changed the board's outlook.

She said the board did not explicitly consider an interest rate rise on Tuesday as they took a slightly different format to previous meetings.

"The way we framed the discussion really was around what had changed since August, and what would we need to see to go either a raise in interest rates or a lowering in interest rates," she said.

"So there wasn't an explicit alternative in the sense that I've talked about in the past."

Also speaking after the board's announcement, Treasurer Jim Chalmers said Australia had made "very substantial progress" in tackling inflation since its 2022 peak.

Dr Chalmers copped criticism earlier this month when he said the impact of rate rises was "smashing the economy".

On Tuesday, the Treasurer was adamant the government shared the same goals as the Reserve Bank.

"We have the same objective when it comes to getting on top of inflation without ignoring the risks to growth in our economy," he said.

Shadow treasurer Angus Taylor said Australia was at the "back of the pack" when it came to bringing interest rates down and fighting inflation.

Experts divided on rate cut predictions
All 42 experts and economists surveyed by comparison website Finder expected a cash rate hold in September.

A handful of those surveyed expected a rate cut by the end of the year, but most predicted a downward move at one of the first three meetings of 2025.

Ms Bullock recently said it was still too early to be thinking about rate cuts.

Speaking in early September, Ms Bullock acknowledged higher interest rates were hurting households, but warned higher inflation caused hardship for all Australians.

"Circumstances may change, of course, and if economic conditions don't evolve as expected, the [RBA] board will respond accordingly," she said.

"But if the economy evolves broadly as anticipated, the board does not expect that it will be in a position to cut rates in the near term."

Reserve Bank to remain 'hawkish' despite US cut
The US Federal Reserve reduced interest rates by half a percentage point as expected in September, the first downward move since 2020.

However many economists have warned Australians should not expect a rate cut sooner as a result.

Charu Chanana, head of foreign exchange strategy at investment bank Saxo, said markets were still pricing in a rate cut this year, but the Reserve Bank was pushing back.

"The US Fed's large rate cut has increased speculation that the RBA may be forced to follow suit sooner than anticipated," she said.

"However, the RBA is likely to stick to its hawkish stance for now, aiming to keep inflation expectations anchored."

Ms Chanana said the next board meeting, set for early November, may see the Reserve Bank pivot, depending on what labour market and inflation data reveals in the meantime.

Anneke Thompson, chief economist at CreditorWatch, agreed any unexpected data could change the central bank's thinking.

"If the data continues its current trajectory of slowly softening, then the RBA is unlikely to change course and the first cut is unlikely to be before the year is out," she said.

"However, one soft unemployment report could change this thinking quite rapidly."

Economist Saul Eslake previously told The Canberra Times it was unlikely Australia's cash rate would come down as soon or as much as other countries because the Reserve Bank simply hasn't raised it as much as its peers.

Mr Eslake has held firm on his view there will be no rate cut for Australia until February.

(Source: The Area News)