It’s a move that was widely expected but nevertheless the Reserve Bank of Australia’s decision to keep interest rates unchanged at its first meeting of 2024, is a relief for struggling home loan borrowers.

After 13 increases since May 2022, the Reserve Bank led by Governor Michele Bullock kept the official cash rate at 4.35% today following the release of data last week showing inflation at a better-than-expected 4.1%, rising only 0.6% in the December quarter.

It means the cash rate has not moved since the RBA made a shock call to increase it by 25 basis points to 4.35% in November.

The RBA’s February decision is the first under its new structure with board meetings reduced from 11 a year to eight (occurring roughly every six weeks). The central bank also held the first of what will be regular press conferences immediately after each OCR decision.

The Reserve Bank board said inflation continued to ease in the December quarter.

“Despite this progress, inflation remains high at 4.1%,” the RBA board said. “Goods price inflation was lower than the RBA’s November forecasts. It has continued to ease, reflecting the resolution of earlier global supply chain disruptions and a moderation in domestic demand for goods.

“Services price inflation, however, declined at a more gradual pace in line with the RBA’s earlier forecasts and remains high. This is consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs.”

The board said higher interest rates were working to establish a more sustainable balance between aggregate demand and supply in the economy.

“Accordingly, conditions in the labour market continue to ease gradually, although they remain tighter than is consistent with sustained full employment and inflation at target.

“Wages growth has picked up but is not expected to increase much further and remains consistent with the inflation target, on the assumption that productivity growth increases to around its long-run average. Inflation is still weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.”

The board said while there were encouraging signs, but the economic outlook is uncertain, and the board remained highly attentive to inflation risks.

“The central forecasts are for inflation to return to the target range of 2% to 3% in 2025, and to the midpoint in 2026.”

Reacting to the Reserve Bank’s decision, AMP chief economist Shane Oliver said it was no surprise that the RBA had left interest rates on hold.

“Since the last meeting, we’ve seen global central banks moving towards rate cuts,” Oliver said.

“We’ve seen weaker job starter (figures) in Australia and also weaker retail sales figures and also a sharper than expected slowdown in inflation.”

“So all of that is consistent with the cash rate having peaked so it makes sense for the RBA to leave the cash rate on hold.”

Oliver said brokers and borrowers had experienced a long period of pain with 18 months of interest rate hikes from May 2022 to November 2023 – the fastest and biggest tightening cycle since the late 1980s.

“That’s obviously been a dampener on demand for mortgages but also caused significant amounts of stress for households with big mortgages so this (RBA decision) was good news. It’s contingent on inflation continuing to come under control but so far the signs are good.”

Three interest rate cuts predicted

Oliver said it was highly likely that this was the peak in interest rates and the next move would be down, “which means relief for mortgage holders later this year”.

“While the RBA remains somewhat cautious, just like other central banks are, we continue to expect the cash rate will fall from around the middle of the year and that by the end of the year we will have seen three interest rate cuts, bringing the official cash rate down to 3.6% from 4.35%,” said Oliver.

“We also expect that all of that will be passed through to variable rate mortgage customers.”

How you can potentially save money before any future rate cuts

Simple, take 30 minutes to have your home loan reviewed either on the phone, over the web or in person. A lending specialist can run a quick review of your current financial position, assess your equity, and present options that may work for you.

Some options we can help you explore include refinancing (which could mean increasing the length of your loan and decreasing monthly repayments), debt consolidation, or building up a cash buffer in an offset account.

If you’re keen to switch and save, get in touch with one of our local specialists today. Understanding your options can start with a simple phone, web, or in person discussion.

Refinance or buying. We make home loans simple.

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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.