By Jacob Shteyman / AAP
The Reserve Bank of Australia has denied mortgage holders an early Christmas gift, leaving interest rates on hold at its final meeting of the year.
In a widely-anticipated, unanimous decision on Tuesday, the central bank’s monetary policy board kept the cash rate steady at 3.6 per cent.
The return of inflation in the second half of 2025 scuppered hopes of more interest rate cuts, following 75 basis points of easing since February.
The rates market and most economists now believe the RBA’s easing cycle is over.
If inflationary pressures continue to build, some analysts say the bank could be forced to hike interest rates as soon as February.
Domain chief economist Nicola Powell said the turnaround in rate expectations could help take some heat out of the rapid price growth in the housing market over the past year.
“However, it doesn’t solve the deeper affordability issues,” she said.
“Mortgage holders are still managing repayments that are significantly higher than they were before the tightening cycle began in 2022.”
The outlook for households and businesses has soured markedly from a few months ago, when bonds traders were pricing in one or two more cuts.
Business confidence plummeted to its lowest level since April, according to NAB’s monthly business survey.
The index fell five points in November but remains just above zero, meaning more businesses remain optimistic than pessimistic.
Business conditions also retreated three index points, as firms noted weaker profitability and trading.
“While the November result shows a break in the recent positive momentum in the survey, business conditions remain well above their early 2025 levels,” NAB chief economist Sally Auld said on Tuesday.
Despite the fall in activity, capacity utilisation climbed to its highest level in 18 months.
The RBA has flagged concerns the economy is operating at maximum capacity and cannot grow further without pushing up inflation.
Recent inflation data showed the consumer price index rose to 3.8 per cent in the 12 months to October, while underlying inflation climbed to 3.3 per cent – both above the RBA’s two to three per cent target range.
RBA governor Michele Bullock will provide further commentary on the bank’s outlook at her post-meeting press conference later today.
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