RBA holds cash rate at 4.35pc

The Reserve Bank of Australia has held the cash rate steady at 4.35 per cent following its first meeting of the new year. 

In a widely expected move, the RBA revealed this morning it would maintain the nation's cash rate steady at 4.35 per cent, avoiding a 14th rise in the current hiking cycle. 

The decision follows data which revealed signs of easing inflation in the economy released last week. 

A statement from the Reserve Bank board noted the signs of easing inflation, but said the RBA remained aware of inflationary risk in the economy.

"While recent data indicate that inflation is easing, it remains high," it said

"The board expects that it will be some time yet before inflation is sustainably in the target range.

"The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out."

The RBA said central forecasts anticipated inflation would return to the target range of 2-3 per cent in 2025.

"Services price inflation is expected to decline gradually as demand moderates and growth in labour and non-labour costs eases," it said.

"Employment is expected to continue to grow moderately and the unemployment rate and the broader underutilisation rate are expected to increase a bit further."

The statement marked a notable shift in the RBA's messaging, as the first to be delivered from the board as a collective instead of attributed directly to governor Michele Bullock. 

It comes as the RBA board shifts to a new meeting schedule, away from its traditional 11 meetings per year to eight meetings in a move designed to give it more time to assess the economic impacts of its decisionmaking. 

Ms Bullock fronted a media conference this afternoon to explain the decision to the public - another first for the RBA.

The RBA governor used the meeting to remind the public that the cash rate lows reached during the pandemic were not the norm, and reiterate the importance of fighting inflation. 

She acknowledged people were doing it tough in the current inflationary environment, and would not rule out adjustments to the cash rate in either direction.

Responses abound

Today's rate hold was widely expected, and well received by economists. 

PropTrack economist Anne Flaherty said the call was a sign that households would have more stability in the new year. 

“Today’s decision is good news for the housing market which looks set to benefit from a more stable interest rate environment in 2024.

"Greater confidence around where interest rates are sitting should support further recovery in buyer and seller confidence."

Head of consumer research at comparison website Finder, Graham Cooke, said news would be welcome relief for households. 

“Households have been struggling immensely according to our data, so this rate hold will come as welcome news," he said.

“We’re now starting to see a few banks ease rates on some of their fixed rate home loans in anticipation of rate cuts to come – the attitude has certainly shifted."

Insight Investment portfolio manager Harvey Bradley said the RBA's statement suggested the rate hike cycle could be over, with cuts to come in the third quarter of the year.

"The statement language continues to soften and it is becoming increasingly apparent the RBA believes they have tightened financial conditions sufficiently during this cycle," he said. 

Moody's Analytics economist Harry Murphy Cruise said the signs were looking up for a cash rate easing the latter part of the year.

"The cash rate will end 2024 at 3.85 per cent and 2025 at 3.1 per cent," he predicted. 

The RBA's next cash rate policy meeting will take place on March 19.