RBA holds cash rate but talk turns to more rate rises
There were no surprises for May's cash rate decision, but there are warnings of further rate hikes.
The Reserve Bank of Australia (RBA) has announced it's keeping the cash rate on hold at 4.35%.
All the economists Finder surveyed (we do that ahead of every cash rate meeting) believed the RBA would hold the rate this month.
That's because, generally, inflation has been trending down, so there's been no need for the RBA to increase the cash rate over the last few months. In fact, inflation had been trending down enough that people started to question when interest rates would go down again.
Things have changed, though. Some economists are warning the RBA could begin lifting rates again.
While inflation is still much lower than it was in 2022, and is only 0.6% away from being where it needs to be, there are concerns.
What's happening with inflation?
Let me break it down. There are a couple of different inflation figures to look at:
Annual change: The change in prices from one quarter to the same quarter a year later (e.g. January to March 2023, compared to January to March 2024)
Quarterly change: The change in prices from one quarter to the next quarter (e.g. October to December 2023, compared to January to March 2024)
Essentially, while the annual change in prices looks good at 3.6%, the latest quarterly change of 1% doesn't look so good. It means the annual change will start to slow down.
And this, poor homeowners, is why interest rates might go up again.
One of the economists that Finder surveys, Nicholas Gruen, from Lateral Economics, said "the likelihood that the next move is down has been taking on water".
"Right now there's a tug of war between hoping that we've got through, and, with recent data, worrying that we haven't," Gruen explained.
"That puts paid to the scope for rate cuts in the next few months but whether the next move is up or down depends on how that question is answered."
That's only one number, it could be ok right?
It could get better, yes. But there's a couple of things to be mindful of over the next few months.
The government's tax cuts will be coming into force from 1 July onwards. This will give people more money to spend, counteracting the role of the higher interest rates in making people spend less. People start spending more, prices go up faster, inflation rises.
We're also a week away from the Federal Budget which is aiming to give Australians relief in other high cost of living areas, like energy bills. Hooray, right?! Hooray, yes, but again this gives people more money to spend elsewhere.
Although these factors don't mean interest rates will definitely increase again, it certainly puts the eventuality of a interest rate cut further down the line.
Cameron Kusher from REA Group, said: "The strong CPI and the looming tax cuts, plus whatever is announced in the Federal Budget is likely to push rate cuts out further."
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