The Reserve Bank's worrying inflation forecasts and the one thing that will delay ANY rate cut

The Reserve Bank is so concerned about high inflation that it has considered raising interest rates again this month.

The cash rate remained at a 12-year high of 4.35 percent on December 5, but was close.

Minutes of that meeting, released on Tuesday, showed that the RBA board had considered raising interest rates by a further 0.25 percentage points to 4.6 percent.

That's because inflation was not expected to fall back to the top of the target of two to three percent until the end of 2025.

“The case for raising the cash rate target by a further 25 basis points was based on the observation that inflation was expected to remain above target for an extended period and that there were risks that this period could be extended,” the report said.

'Members noted that inflation was increasingly driven by domestic demand.

“They also found that underlying inflation in Australia was higher than in several other countries.”

Australia's monthly inflation rate of 4.9 percent in October was significantly above the corresponding US figure of 3.2 percent, which fell to 3.1 percent in November.

The US Federal Reserve's fed funds rate is also much higher at 5.25 to 5.5 percent because fewer US borrowers have variable mortgage rates.

Nevertheless, the Reserve Bank of Australia's minutes said the return to the target by the end of 2025 would see inflation fall to 3 percent, rather than closer to 2.5 percent as forecast earlier this year.

“In addition, it was assessed that domestic demand was still above levels consistent with the inflation target and that growth could be supported in the coming year by a recovery in real household disposable income as inflation fell,” the report said .

“Members noted that the latest staff forecasts, which were based on an increase in productivity growth, would see inflation return to the top of the target range, rather than the middle of the range, by the end of 2025.”

The RBA's minutes made three mentions of “domestic demand” – three weeks after Governor Michele Bullock told a conference in Hong Kong that “very strong immigration into Australia” also “meant demand has held up” and ” the reason was why we see prices for services rising'. inflation is quite persistent in Australia'.

ANZ head of Australian economics Adam Boyton said while the RBA had finished its rate hikes, the debut of the third stage of tax cuts on July 1 next year would delay rate cuts until November 2024.

'Our view on the RBA remains unchanged, we think the cash rate has peaked at 4.35 per cent.

'We expect the RBA to maintain a tightening stance in the first half of 2024.

“Interest rate cuts remain some distance away (we see the first easing in November 2024), with tax cuts (from July 1, 2024) and likely additional discretionary fiscal easing coming first.”

From July 1, 2024, the number of tax brackets will be reduced from five to four for the first time since 1984.

The minutes of the RBA's December meeting, released on Tuesday, revealed that the RBA board had considered raising rates by a further 0.25 percentage point to 4.6 per cent (pictured shows a Woolworths shopper in the east of Sydney)

This will lead to the creation of a new 30 per cent tax band for Australians earning $45,000 to $200,000.

Those with an income of $80,000 would get back $875 in 2024-25, when tax liability for that financial year was compared with 2023-24 and 2022-23.

Higher income earners will fare a lot better, with those with an income of $120,000 getting back $1,875.

Those earning $200,000 will get a very generous $9,075 back.

The Reserve Bank of Australia will hold eight monetary policy meetings in 2024, down from 11, following a review.

This will put Australia in line with the United States, where interest rate increases were greater when inflation was higher.