Aussies are dealt interest rate blow – as telling sign emerges of when much-needed relief will finally come

Australian home borrowers have been dealt another blow just half an hour before the Melbourne Cup with interest rates left on hold – with a new inflation warning.

The Reserve Bank kept the cash rate untouched at a 12-year high of 4.35 per cent on Tuesday afternoon, and warned inflation would not ‘sustainably’ moderate until 2026.

‘Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range,’ it said.

The RBA has also warned it could still raise rates, despite borrowers in Canada, New Zealand, the European Union, U.S. and UK already getting some relief this year. 

Australia’s Big Four banks – Commonwealth, ANZ, Westpac and NAB – are now all expecting the RBA to cut rates in February for the first time since late 2020. 

The futures market is now expecting three rate cuts in 2025, but it doesn’t see any relief until May. 

The RBA also released a statement on monetary policy forecasting inflation not ‘sustainably’ returning to the mid-point of its 2 to 3 per cent target until 2026. 

Australia’s headline inflation rate in the year to September fell to a three-and-a-half year low of 2.8 per cent, putting it inside that target band. 

But underlying inflation was higher at 3.5 per cent when the one-off effects of the federal government’s $300 electricity rebates and falling petrol prices were excluded from the quarterly data.

‘While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,’ the RBA said on Tuesday.

The Reserve Bank has even left open the possibility of another rate rise, even though financial markets aren’t betting on a hike in Australia.

‘This reinforces the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out,’ it said.

Saxo Asia Pacific chief investment strategist Charu Chanana said the Reserve Bank was deliberately trying to crush expectations of a rate cut.

The Reserve Bank kept the cash rate untouched at a 12-year high of 4.35 per cent on Tuesday afternoon (pictured is Governor Michele Bullock)

‘The RBA remains on the hawkish side in the global central bank spectrum as it continues to stay away from the clear signalling of rate cuts,’ she said.

‘That clearly fails to make an impact on markets, especially coming on a day when markets are awaiting the US election results in a closely-tied race, as well as announcements of further stimulus measures from China.’

November’s meeting was the second last for 2024, with the RBA meeting again on December 9 and 10. 

The Reserve Bank also hinted it would be monitoring the result of the US presidential election with Republican Donald Trump the betting market favourite to move back into the White House with a plan to impose double-digit tariffs on imported goods.

‘The board will continue to rely upon the data and the evolving assessment of risks to guide its decisions,’ it said.

‘In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.’

Governor Michele Bullock is holding a media conference at 3.30pm Sydney AEDT time.