Sydney, Dec 10: The Reserve Bank of Australia (RBA) has decided to keep the cash rate steady at 4.35 per cent and the interest rate on Exchange Settlement balances unchanged at 4.25 per cent during its final meeting of 2024. This decision comes amid ongoing efforts to address inflation, which remains above the target range.
Inflation and Economic Growth
Underlying inflation, currently at 3.5 per cent, is still above the midpoint of the RBA’s target range, delaying a sustainable return to the 2–3 per cent band until 2026, as forecasted in the November Statement on Monetary Policy (SMP). Despite recent declines in inflation, economic activity remains mixed, with GDP growth at just 0.8 per cent over the past year—the slowest pace outside of the COVID-19 pandemic since the early 1990s.
Household consumption remains subdued due to restrictive financial conditions, while the labour market shows resilience. Employment has grown, and the participation rate remains near record highs, yet the unemployment rate has risen to 4.1 per cent from 3.5 per cent in late 2022. Wage pressures have eased, with annual growth at 3.5 per cent, but weak productivity growth persists.
Impacts on Households and Borrowers
The RBA’s monetary policy continues to weigh heavily on households. According to Finder’s RBA Cash Rate Survey™, the average mortgage holder with a $641,416 loan is now paying $3,958 per month in repayments, $1,453 more than in April 2022. Graham Cooke, head of consumer research at Finder, stated, “Thousands of stressed homeowners can’t manage much longer with soaring mortgage costs smashing household budgets.”
Rising Credit Card Reliance
Finder’s survey indicates that 54 per cent of experts expect increased reliance on credit cards during the festive season. Currently, the average Aussie credit card holder carries $3,189 in debt. Cooke warned, “Credit cards can be a great financial tool… but they can quickly become a nightmare if you fall behind on repayments.”
Expert Insights on Rate Cuts
Most economists anticipate rate cuts in 2025, though opinions vary on the timing. Shane Oliver of AMP said, “With underlying inflation at 3.5 per cent… the RBA is in no hurry to cut rates. We pushed out our expected first rate cut to May.” Similarly, Stella Huangfu of the University of Sydney noted, “Q3 GDP growth was just 0.3 per cent… suggesting potential cuts by May 2025 if growth remains sluggish and inflation eases.”
The RBA remains resolute in returning inflation to target and will closely monitor global economic trends, domestic demand, and labour market conditions in making future decisions.
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