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The Reserve Bank of Australia has left the cash rate on hold in a widely anticipated move which nevertheless means many Australian homeowners will head into Christmas with little mortgage relief amid a continuing cost-of-living crisis, in addition to recent data which has shown the national economy in a slump.
At its final meeting for the year, the RBA announced the cash rate would stay at 4.35% – a position it has been at since as far back as November 2023 when it was pushed up from a previous setting of 4.10%.
The RBA’s decision to keep the rate steady over nine consecutive meetings had seen it deviate from the actions of many other central banks, which have eased rates in the face of a global prevalence of higher prices.
Expected, but not wanted
Heading into the decision on Tuesday, the consensus held the cash rate would remain at 4.35%, with none of Australia’s four leading banks expecting a rate cut after the December meeting – although they were divided in expectations for future decisions.
Westpac, NAB, and ANZ are predicting rates won’t be eased until May 2025, while the Commonwealth Bank has been more optimistic, plumping for a likely cut in February.
It is no secret the RBA’s steady position over more than two years has been an unpopular one, and this meeting in particular attracted calls from various players such as economist and journalist Stephen Koukoulas and the Australian Council of Trade Unions (ACTU), both of whom urged a rate cut in the lead up to Christmas.
In his letter to the RBA Board, Mr Koukoulas said the ‘error’ it was making with monetary policy was “unnecessarily damaging the economy and society”. Meanwhile, ACTU secretary Sally McManus said the central bank had got it wrong in arguing to keep the rate on hold in order to retain a strong labour market.
“The RBA is out of touch and out of step. There are real people behind the statistics they see; real people who are being smashed by their refusal to join the rest of the world starting to cut rates,” she said.
“We are concerned the RBA is making a serious mistake by keeping rates too high for too long. They were wrong on wages – there was no wages spiral. They were blind to price gouging when it was obvious to everyone. And their outdated idea that unemployment needs to go up is also wrong.”
Australia’s economy facing challenges
The Reserve Bank’s decision was preceded by data released by the Bureau of Statistics (ABS) last week, which showed Australia’s economy is growing at its slowest pace in decades, with annual GDP growth for the third quarter slumping to 0.8% in spite of record rates of government spending.
Economists had expected a rate of 1%, but the reading indicated weak growth was a continuing trend, following a sluggish performance in the June quarter.
The following day, the ABS reported household spending had grown 0.8% in October – seasonally adjusted – with spending in all nine categories; the overall number showed a recovery from a 0.2% drop in September, and a 0.3% rise in August.
Analysts however, were cautious about whether the trend would be sustained.
Just hours ahead of the RBA decision on Tuesday, the news flow turned negative again, with a NAB survey indicating business confidence had dropped eight points (for a reading of -3 points) in November.
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