Higher inflation for longer is likely to rule out any further rate cuts, with the Reserve Bank’s latest set of economic forecasts pointing to a pretty dour 18 months ahead.
The RBA monetary policy board surprised nobody on Melbourne Cup day when it held its cash rate target at 3.6%.
It was probably the safest bet in town after inflation came in far hotter than anticipated in the September quarter, which reset expectations for where it will go through 2026.
At Michele Bullock’s post-meeting press conference, attention naturally turned to one question: what’s next for Australia’s mortgage-stretched homeowners?.
But the central bank’s governor gave little sign that the RBA has any answers there, plumping for a post-match cliche that the board was taking it “meeting by meeting”.
Sign up: AU Breaking News email
For homeowners, it would be best to assume that there’s no further interest rate cuts from here, and that there’s some small chance of a hike.
What we do know is that the central bank now doesn’t think inflation will be back in its 2 to 3% target range until 2027.
By then, consumer price growth will have spent almost all of the preceding five years above 3%, which can’t be seen as a great outcome.
Inflation is going to accelerate to 3.7% by the middle of next year and only get back below the top of the band by early 2027, the RBA reckons.
That’s going to make it harder for wages to keep up with prices, and it’s going to mean another year of families trying to keep up with the cost of living.
Expect somewhat more muted brags coming out of the Albanese government. It raises the spectre that Canberra will feel compelled to extend power price relief beyond the end of this year, which will help households but further muddy the waters when it comes to inflation.
As it turns out, even lukewarm growth might be too hot in an economy with no productivity growth.
On the upside, the RBA doesn’t expect unemployment to pick up from here, confidently predicting the key jobless measure pretty steady at about 4.4%.
Bullock made it clear that the board is aiming for 2.5% inflation, and that “just below three is not good”.
As part of its latest forecasting, the RBA assumes the market’s prediction for one more rate cut in 2026.
But the governor flagged that we shouldn’t be placing too much store in that.
“It’s really an interesting question about whether there’s many more rate cuts left to come,” she said.
That’s pretty cryptic, but it’s a long way from earlier this year when she was flagging multiple more rate cuts were in the offing.
And could the next move in rates be up?
“Anything’s possible,” she deadpanned.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: theguardian.com
