Interest rate stoush: What can we expect from the RBA next week?

Politicians and industry experts are weighing in on the likelihood of a pre-Christmas interest cut following quarterly data from the Australian Bureau of Statistics on Wednesday, which showed inflation at 2.8% and back in the bank’s target range.

The bank will meet next week to make its second-last call on interest rates for the year in a week that marks 12 months of interest rates at 4.35% and four years since Australians felt the relief of a rate cut.

Speaking at a press conference in Melbourne this week, treasurer Jim Chalmers said the inflation data shows the country is “on track for a soft landing in our economy”.

This is despite governor Michele Bullock’s insistence that the bank is only focused on core inflation. The main measure of this, the trimmed mean, only fell half as much as the headline in the September quarter.

At 3.5%, it remains well above target level, meaning mortgage holders are less likely to get a much-hoped for reprieve on rates than headline figures suggest.

Treasurer Jim Chalmers has said the government will continue to play its role in fighting inflation and leave the RBA to make its decision. Picture: realestate.com.au

“We are confident but not complacent about the substantial progress that we are making as a country,” Mr Chalmers said. “Our back-to-back surpluses are helping, and we are rolling out responsible cost-of-living help, which is making a meaningful difference.”

Speaking on the ABC Afternoon Briefing, minister for finance Katy Gallagher agreed the 2.8% figure was “really welcome”.

“The figures show good progress in the fight against inflation, if you look at all the measures that sit under underlying headline inflation, they’re all tracking down,” she said.

“These inflation results are the lowest we’ve seen in three years. That’s a very, very strong result.”

While the figures do paint a positive picture at first glance, the recent International Monetary Fund's World Economic Outlook predicted that Australia’s inflation would return to 3.6% by the end of next year.

Mr Chalmers said he recognised people remain under pressure, outlining plans to remain vigilant.

“We don't pretend that the fight against inflation has already been won,” he said. “We’ll continue to look at ways we can make a difference for people when they’re sitting around their household tables trying to make their budgets work, but at the same time we’ve got to make sure we’re being fiscally responsible as well and making sure that we’re doing what we can to make sure we’re easing inflation.”

Also speaking at a press conference this week, shadow treasurer Angus Taylor dismissed talk of pressures easing.

“Temporary subsidies will not hoodwink the Reserve Bank of Australia, and they certainly won't hoodwink the Australian public,” he said. “If you look under the bonnet of the numbers that have just come out today in the last hour or so, we see that the weighted mean, a measure of core inflation is still running at 3.8%, well above what was expected.”

He continued: “Services inflation is running at 4.6% and the Reserve Bank has pointed out on multiple occasions how important that number is to understanding whether we're moving towards a more sustainable position. 4.6% which again, is way above the target level.”

The Reserve Bank of Australia will announce its next interest rate decision on Tuesday afternoon. Picture: Getty

Core inflation in Australia is currently higher than in Canada, Japan Sweden, Norway, New Zealand and the Euro area.

“Interest rates are coming down in the United States, in the UK, in New Zealand, in Canada, in Europe, not in Australia,” Mr Taylor said.  “We are absolutely at the back of the pack. We have a treasurer who crows about how wonderful it is that he's spending so much money. Well, you know, that's an unsustainable proposition for an Australian economy.”

Pressure on cuts

With pressure mounting on the RBA ahead of its decision on Tuesday, this week finally saw Commonwealth Bank come into line with the rest of the big-four on whether homeowners would get a pre-Christmas rate cut.

While Australia’s biggest lender had previously anticipated rates would come down in December, it has now joined Westpac, National Australia Bank and ANZ with a February prediction – a blow to mortgage holders.  

Stockdale & Leggo chief executive Charlotte Pascoe said she hoped the RBA would consider a small cut of 0.25 before the end of the year, but did not expect it.

“I think people can get a little bit more confidence from the inflation figures, hopefully bring their properties to market, and starting to look again,” she told Mortgage Choice.

“I would love to see a gesture from the RBA, knowing Australians have done it so tough, the housing, the cost of owning and maintaining a home, everybody's feeling it. Relieve that pressure valve, just to give people a little bit of breathing space. The electricity grants were lovely, but it gave us a false economy, and it's not sustainable.”

The Australian Council of Trade Unions is also calling for rates to be cut before the year is out in order to free up pressure on mortgage holders.

“Australia’s families have spent three-and-a-half years shouldering the financial hardship that has come with the need to put the brakes on inflation,” secretary Sally McManus said.

“Even an initial quarter of a percentage cut in interest rates, on the average mortgage, puts an extra $100 a month back into the household budgets of families who need that money.”