Australian borrowers should brace for a prolonged period of high interest rates, with the Reserve Bank signalling it is in no rush to provide relief. Minutes from the November board meeting reveal a firm commitment to holding the cash rate steady for many months to combat ongoing price pressures.
Unanimous Decision to Hold Rates
The RBA Board, under Governor Michele Bullock, unanimously decided to keep the official cash rate at 3.6 per cent during its November meeting. This cautious approach was driven by a concerning jump in core inflation, which strips out volatile items, to 3 per cent for the year to September.
This decision was quickly vindicated by subsequent economic data. Just days after the meeting, strong jobs figures were released, showing Australia's unemployment rate had fallen back to 4.3 per cent, underscoring the resilience of the labour market.
Inflation Battle Far From Over
The newly released minutes provide the clearest indication yet that the central bank is preparing for a lengthy fight against inflation. While the RBA had previously published a forecast showing inflation would be slightly above the midpoint of its target range in 2027, this was based on market expectations of one more rate move.
A critical detail in the minutes reveals a staff forecast assuming no further interest rate changes had inflation settling closer to the midpoint. This implies the RBA believes it will need to keep rates at their current level through most of next year to successfully guide inflation back to its target.
The bank acknowledged that the inflation jump in the September quarter might not be as temporary as initially hoped. The minutes specifically point to home building costs and services as persistent trouble spots, warning that there could be a little more underlying inflationary pressure than previously assessed.
Broader Price Pressures Emerge
Concerns are mounting that inflationary pressures may be more widespread. The RBA minutes note that other data, beyond the official Consumer Price Index from the Australian Bureau of Statistics, has also been signalling higher inflation.
The central bank pointed to a range of alternative inflation measures and wage indicators, which together painted a slightly worse picture than the headline CPI figure. This suggests that the challenge of taming cost-of-living increases is broader and more complex than a single data point can capture.
For now, the message from the RBA is clear: the era of high-interest rates is not ending anytime soon as the bank remains steadfast in its mission to return inflation to target.
