Reserve Bank tipped to extend interest rates pause as attention turns to timeline for cuts

RBA boss Michele Bullock will speak publicly about rates for the first time in 2024 this week.

RBA boss Michele Bullock will speak publicly about rates for the first time in 2024 this week. Photo: TND

Australians are hoping for an interest rates cut when the Reserve Bank meets for the first time in 2024 this week, but economists say mortgage bills are much more likely to stay on pause.

Central bankers will decide on Tuesday whether to change the cash rate target from 4.35 per cent, where it has stood since November, or leave policy on hold for another month.

After December-quarter inflation figures last week showed the pace of price growth is easing faster than anticipated, economists largely expect another pause in February and beyond that.

Finder’s survey of 27 economists has delivered an unanimous prediction that rates will be left on ice, while 93 per cent believe the cash rate has peaked.

That might disappoint some households hoping that falling inflation would deliver a rate cut, but the silver lining is that most experts now think rates have peaked and the next move is down.

It means the more than $1100 in monthly repayments added to a typical $500,000, 25-year home loan over the past 18 months won’t get any worse, and that relief is now on the horizon.

Commonwealth Bank chief economist Gareth Aird said there’s “no chance” of a rate cut or hike at the February RBA meeting, though the board is likely to maintain a slight tightening bias.

“The case to leave monetary policy on hold next week is stronger than at any point in the last two years,” Aird said.

“The Q4 23 CPI [December-quarter consumer price index] indicated that more progress has been made in returning inflation to target than the RBA expected when it published its inflation forecasts in November.

“In addition, economic growth is slowing more quickly than the RBA anticipated.”

Headline inflation fell to 4.3 per cent over the December quarter, which was below the 4.5 per cent the RBA had pencilled in, while consumer spending was also quite anaemic over Christmas.

There were, however, lingering price pressures that may worry central bankers, including rents.

Timing of rate cuts uncertain 

University of Sydney associate professor Mark Melatos said inflation is still above the RBA’s target band of 2 to 3 per cent, and that another rate hike is still a possibility.

“Inflation remains above the RBA’s target band despite moderating in recent months,” he said.

“As long as low unemployment (effectively full employment) persists, the cash rate is unlikely to be reduced and further increases remain a possibility.”

Economist Saul Eslake doesn’t foresee another rate hike this year, but isn’t convinced a cut is on the horizon in 2024 either.

“The December-quarter figures were good enough to rule out whatever little prospect there was of the RBA raising rates again – but not, in my opinion, good enough to warrant any expectation that they’ll cut rates at that meeting, or indeed at any meeting this year,” Eslake said.

Bullock to speak publicly

The February RBA meeting will be the first under a changed format for central bank interest rate decisions.

The decision will be published as normal at 2.30pm AEDT on Tuesday, but governor Michele Bullock will now hold a press conference following the release of the decision.

It will be the first time the governor has appeared publicly since the new year and she will undoubtedly be asked about the trajectory for interest rates following the latest inflation data.

Federal Reserve governor Jerome Powell was asked a similar question by reporters in the United States last week and opted to pour cold water on the prospect of rate hikes.

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