The Reserve Bank (RBA) kept the cash rate on hold at 4.1 per cent for the fourth month in a row as persistent inflation continues to cause pain beyond borrowers.
Overwhelmingly, economists have predicted Australians won't be given any rate relief this year, with the jury still out on whether we will see another hike next month.
The RBA’s tactic to get inflation under control has been impacted by various factors, including the tight rental market and the rising cost of everyday household items like bread, dairy, petrol, electricity and gas.
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Financial expert David Koch told Yahoo Finance the wording RBA governor Michele Bullock used in her maiden announcement indicated a “steady as she goes approach” that may mean sustained pain, but no $1,400 blow to borrowers before year’s end.
“They are still confident that inflation will get back to the Reserve Bank’s 2-3 per cent target by the end of next year or early 2025,” Koch said.
“There seems to be no change in rhetoric, which tends to give you an indication that next month’s meeting will be a pause as well.“
But Koch had some sobering news for anyone expecting interest rate cuts next year, saying “they are definitely not going to come”.
“What you see is what you get and it’s going to stay tough for a lot longer than anyone expected. We are all going to have to get used to it because there is no shining, white, financial knight on the horizon,” the Compare the Market economic director said.
Another cash rate announcement will come after the quarterly inflation data for September comes out on October 25.
Here’s what nine other economists had to say about the state of play in Australia:
Peter Boehm, Pathfinder Consulting: “If underlying inflation holds at this level for another month, the chances of a rate increase in November are almost certain."
Tomasz Wozniak, University of Melbourne: “My forecasts, especially those for weekly data, indicate possible decreases in the interest rates, starting next year.”
Mala Raghavan, University of Tasmania: “Essential household expenses like bread, dairy, rent, electricity, and gas continue to experience persistent price hikes. These factors collectively contribute to an elevated cost-of-living index, particularly affecting vulnerable households in Australia. If the inflation rate remains stubbornly around the 5 per cent mark in the coming months, the RBA may contemplate implementing a cash rate hike in early 2024.”
Harry Murphy Cruise, Moody's Analytics: “There are plenty of pain points. Rents and utility prices are heading skyward, and rising services inflation continues to dampen the “good” news - quickly falling goods inflation. Still, the positives outweigh the negatives. All that will see the RBA hold tight. A pause from the RBA won’t be akin to a cut. Household budgets will be under pressure as long as interest rates hold at current levels. That will keep spending tight and put downward pressure on inflation."
Nalini Prasad, UNSW Sydney: “The RBA will adopt a wait-and-see approach and keep the cash rate steady."
David Robertson, Bendigo Bank: “November will be a closer call. Rates remain on a higher-for-longer path as core services inflation persists."
James Morley, University of Sydney: “If the US economy deteriorates, then a recession in mid-2024 is possible (although not the most likely scenario). Inflation will likely have dropped further by then, so the RBA would cut if there were enough indicators of recession."
Kyle Rodda, Capital.com: "Although restrictive, policy is probably not sufficiently restrictive. The cash rate remains too low to get inflation back down to target within the RBA's desired time frame."
Nicholas Frappell, ABC Refinery Pty Limited: "Higher energy costs and likely stickier inflation that remains above target suggest one more hike."