Interest rates kept on hold despite inflation worries

Borrowers have been spared more mortgage pain following the Reserve Bank of Australia’s decision to keep interest rates on hold for the fourth meeting in a row.

The board came to its decision on Tuesday after two days reviewing the the state of the economy and progress on inflation.

Heading into the meeting, forecasters were broadly in agreement the central bank would be leaving interest rates at 4.35 per cent – where they have been since November last year.

Yet following stronger domestic and overseas inflation data, economists were on the look out for altered posturing on future interest rate moves.

In the post-meeting statement, the RBA board said “the economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth”.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out,” the statement read.

Updated forecasts released at the same time show inflation is proving more stubborn than thought back in February, and the outlook for economic activity a little softer for the rest of 2024.

While the central bank still expects to have inflation back within its target range of two-three per cent by December 2025, in the near term, price pressures are proving harder to budge.

Headline inflation has been revised up to 3.8 per cent in June this year, from 3.3 per cent at the last count, and is expected to remain at that level throughout the rest of 2024 before softening to 3.2 per cent by June 2025.

The May cash rate meeting will also be the last before the federal government’s budget next week.

By Poppy Johnston in Canberra