RBA keeps interest rates on hold as hopes of a 2024 rate cut fade

There's no relief on the horizon for households and borrowers hoping for an early rate cut, with the Reserve Bank holding the cash rate steady at its May meeting as the latest data shows inflation has been trickier to rein in than expected.

The cash rate will remain on hold at its 12-year high of 4.35%, where it’s sat since November last year, the RBA board decided on Tuesday.

The RBA has kept the cash rate on hold at 4.35% at its May meeting. Picture: Getty

The decision to keep rates steady came after data released last month by the Australian Bureau of Statistics (ABS) showed the final battle to bring inflation back to target was proving harder than anticipated.

The rate of inflation eased to 3.6% in the year to March 2024, down from 4.1% in December 2023 – a result that was higher than expected and dampened hopes of a rate cut later this year.

But while the inflation result was above expectations, it wasn’t alarming enough for the RBA to justify increasing interest rates further this month.

Economists widely expected the RBA to hold rates steady, and financial markets are no longer pricing in a rate cut until at least the second half of next year.


The RBA decided to keep Interest rates on hold at its May board meeting, Michele Bullock's sixth as governor. Picture: Martin Ollman

PropTrack economist Eleanor Creagh said the sustained pause in interest rates reflected further easing in inflation still to come as the full impact of high rates worked through the economy.

“Although inflation has not fallen as quickly as expected early in the year, retail sales and consumption are weak, and consumer sentiment remains low,” she said.

“Despite higher-than-expected inflation in the March quarter confirming the challenging journey towards lower inflation, the board remains forward looking, anticipating further decline in inflation by the end of the year.”

Rate cuts pushed out

Sticky inflation will likely mean interest rates remain higher for longer, according to major lenders Westpac and Commonwealth bank, who have pushed back their predictions for the first rate cuts from September to November this year to match the other big banks.

Westpac chief economist Luci Ellis said the RBA would want to see more progress on inflation before even thinking about cutting rates.

Borrowers will need to endure high interest rates for longer, according to the big banks. Picture: Getty

“With the inflation surprise in the March quarter and some further upside possible in the June quarter, the outlook for rate cuts in Australia has been pushed out,” she said.

Although inflation came in higher than expected in the March quarter, it has been trending down since December 2022, said Mortgage Choice chief executive Anthony Waldron.

“While the latest inflation data may have dashed borrowers’ hopes of a cash rate cut in the near future, I suspect the RBA will wait to see the federal budget and June quarter CPI before considering any changes to the cash rate,” he said.

Property prices keep rising

Property prices have continued to grow despite high interest rates, with Australia’s median home value reaching a new record in April after rising 6.6% over the past year.

Values have grown at double that rate in some cities including Perth (up 20.2%) Adelaide (up 14%) and Brisbane (up 12.8%)

Prices in Perth have gone up faster than in any other capital, rising more than 20% in the past year. Picture: Getty

Meanwhile, the most recent ABS data shows the total value of new loan commitments in March was almost 18% higher than a year ago, with investor lending alone jumping about 31%.

Ms Creagh said interest rate stability had contributed towards property price growth.

“Although higher than expected inflation in the March quarter has pushed back the expected timing of rate cuts, most still expect that the next move for interest rates will be down. However, the timing remains uncertain.”

The imbalance between supply and demand has offset the higher interest rate environment and deterioration in affordability, Ms Creagh said.

“Property prices are expected to lift further this year, with housing demand buoyed by population growth, tight rental markets, resilient labour market conditions and home equity gains supporting upgrade activity.”

Originally published at https://www.realestate.com.au/news/rba-keeps-interest-rates-on-hold-as-hopes-of-a-2024-rate-cut-fade/