The Reserve Bank of Australia (RBA) has decided to keep the official cash rate at 4.35%, marking a full year without a change. While recent data shows inflation has fallen back into the RBA’s target range for the first time in three years, the central bank remains cautious. For Australian households struggling with high mortgage payments and living costs, this decision means no immediate relief, but there are growing signs of potential rate cuts in early 2025.
Why is the RBA Holding Rates despite Lower Inflation?
Recent figures from the Australian Bureau of Statistics showed that consumer price inflation cooled to 2.8% in the September quarter. This is a welcome sign that previous rate hikes are working to slow the economy. This figure sits comfortably within the RBA’s target band of 2% to 3%.
However, the central bank is looking deeper than the headline number. Core inflation, which removes volatile items to give a clearer picture of underlying price pressures, remains a concern. The RBA noted that core inflation is still slightly above target at 3.5%, driven by persistent price rises in services.
In a public statement, RBA Governor Michele Bullock stressed that the board is focused on ensuring a “sustainable return to inflation within the target range.” This cautious approach suggests the RBA wants to be completely sure that inflation is under control before considering any rate cuts, fearing that easing policy too early could undo the progress made.
The Strong Job Market and Cautious Consumers
Adding another layer of complexity to the RBA’s decision is the strength of the Australian job market. Unemployment has remained at historic lows, with strong job creation continuing to support the economy. This resilience is a positive sign, but it also creates a risk that strong wage growth could fuel further inflation.
At the same time, Australian households are clearly feeling the pinch. Consumer spending has weakened, with retail sales figures showing that people are cutting back on non-essential purchases. Even with recent federal tax cuts aimed at boosting disposable income, many are choosing to save or pay down debt rather than spend. This indicates that the high interest rates are having their intended effect on household budgets.
| Economic Indicator | Current Status |
| Official Cash Rate | 4.35% (On Hold) |
| Headline Inflation (Sept Qtr) | 2.8% |
| Core Inflation (Trimmed Mean) | 3.5% |
| Homeowners in Mortgage Stress | 47% (as of October) |
Rising Mortgage Stress and the Cost of Living
The human side of these economic decisions is the growing financial pressure on homeowners. A recent survey from Finder revealed that a staggering 47% of Australian mortgage holders reported struggling to meet their repayments in October. This level of mortgage stress is nearing record highs and highlights the severe impact of the twelve rate hikes since 2022.
Those who bought property recently at high prices are particularly vulnerable to the sharp increase in borrowing costs. According to Sean Langcake at Oxford Economics Australia, uniquely Australian factors are also at play. “The rise in services prices, including health, education, and insurance, is still outpacing expectations,” he noted, explaining that these non-discretionary costs continue to squeeze household finances.
What is the Outlook for Interest Rate Cuts?
Despite the current holding pattern, there is a growing consensus that relief is on the horizon. Economists and the heads of Australia’s four major banks are now forecasting that the RBA could start cutting interest rates as early as February 2025. While the exact timing is debated, most experts agree that cuts are likely by the middle of next year if inflation continues to behave.
Graham Cooke, head of consumer research at Finder, offered a hopeful outlook for those under financial strain. “The good news is that 2025 will almost definitely bring multiple rate cuts,” he said. “There’s a light at the end of the tunnel for those currently facing mortgage stress.”
The RBA will be closely monitoring several key factors before making a move, including:
- Ongoing global economic stability, particularly in the U.S. and China.
- The next few quarters of domestic inflation and employment data.
- Trends in consumer spending and household savings.
Treasurer Jim Chalmers has described the economic situation as “encouraging,” but he also acknowledged the ongoing hardship for many Australians. The government’s focus remains on balancing inflation management with targeted support for households.
Frequently Asked Questions
Why didn’t the RBA cut interest rates if inflation is in the target range?
The RBA is being cautious because core inflation, which measures underlying price pressures, is still above the 2-3% target. The bank wants to ensure inflation is sustainably under control before cutting rates to avoid it flaring up again.
When are interest rates expected to be cut in Australia?
Most economists and major banks are predicting the first rate cut could happen in early 2025, possibly as soon as February. However, this depends on inflation remaining low and the economy staying on its current track.
What is mortgage stress and why is it so high?
Mortgage stress refers to when a household struggles to meet its home loan repayments. It is currently high because interest rates rose very quickly from historic lows, significantly increasing monthly payments for homeowners, especially recent buyers.
How does the job market affect the RBA’s interest rate decisions?
A strong job market with low unemployment is generally positive, but it can contribute to inflation through higher wage growth. The RBA has to balance its goal of full employment with its primary mandate of keeping inflation stable.
