Chilling warning about another rate rise even though inflation has fallen to a two-year low

The Reserve Bank of Australia has indicated that borrowers could face another rate hike, even as inflation has fallen to a two-year low.

Governor Michele Bullock and her monetary policy council left the cash rate unchanged at a 12-year high of 4.35 percent on Tuesday afternoon.

But she has rejected any suggestion of a rate cut anytime soon – and in fact suggested a possible rate hike – even as headline inflation fell to a two-year low of 4.1 percent in 2023.

“Inflation continued to decline in the December quarter. Despite this progress, inflation remains high at 4.1 percent,” she said on behalf of the RBA board.

“The interest rate path that will best ensure inflation returns to target within a reasonable timeframe will depend on the data and evolving risk assessment, and a further rise in interest rates cannot be ruled out.”

Home borrowers have already faced the most aggressive pace of monetary policy tightening since 1989, with the RBA raising rates for the thirteenth time in eighteen months in November.

Monthly mortgage repayments are 69 percent higher than almost two years ago.

The RBA updated its forecasts in November for inflation to return to the top of its 2 to 3 percent target in December 2025 instead of June 2025.

“While there are positive signs on goods price inflation abroad, services price inflation has remained persistent and the same could occur in Australia,” the RBA board said on Tuesday.

The RBA remains concerned about inflation, even as the 30-day interbank futures market expects a rate cut by the Reserve Bank in August, the first since 2020.

The Reserve Bank will hold eight two-day board meetings in 2024 instead of 11 monthly meetings, following the recommendations of a review.

The Reserve Bank of Australia has indicated that borrowers could face another rate hike even as inflation has fallen to its lowest level in two years (pictured is an auction in Sydney)