RBA interest rates as it happened: Cash rate stays on hold at 4.35 per cent

And that’s all from Michele Bullock’s press conference.

Last month, the RBA put out some research with some concerning findings.

While a majority of Australians (60 per cent) thought they had a “good understanding” of how the economy works, a similar proportion thought higher interest rates leads to higher inflation, when the opposite is true.

That poses a genuine issue for the RBA, as inflation expectations are a piece of its its interest rate puzzle.

Bullock says the central bank is working to help educate Australians and correct that misunderstanding, but warns that will take time.

“We’re looking at ways of trying to target particularly those groups of people that seem to want to know more, but don’t – they admit they don’t understand and would like to know more,” she says.

“Some of those groups are women, for example, and youth is another group that sort of indicate they’re not sure they quite understand, but they want to understand.

“So, we’re looking at channels to try and target them.”

The RBA appears to have been surprised by the scale of the slowdown in home prices that’s hitting the property market.

9News finance editor Chris Kohler asked Bullock whether that surprise is coming more from the three interest rate hikes earlier this year or the government’s changes to negative gearing and the capital gains tax discount.

“It’s very hard to tell,” she says.

“The other thing, of course, is I think just general uncertainty earlier in the year from the whole conflict in the Middle East and the petrol prices and all those sorts of things, that all added to people being a little bit nervous about it.

“So there’s a number of factors. I wouldn’t like to attribute a particular percentage to any.

“All I can say though is that historically, when interest rates rise, yes, you would typically see some sort of slowing in the housing market.” 

Bullock has warned – not for the first time – that anaemic productivity growth is weighing heavily on the economy.

“The board… remains concerned about the continued weakness in productivity growth,” she says in her opening statement.

“Productivity outcomes have been weak for some time, and continued weakness will constrain the economy’s ability to grow without generating high inflation.

“We expect that a period of subdued growth in the economy will be required to bring inflation down substantially.”

She’s then asked about productivity and whether she’s concerned that it’s just population growth that is propping up economic growth.

“As long as the productive capacity of the economy isn’t growing, we cannot grow very fast without running into inflationary pressures,” she says.

“So yes, we’re concerned. Can we do anything about it? No.

“So we just have to set monetary policy to deliver low and stable inflation and hope that low and stable inflation gives good economic conditions for businesses to be confident and consumers to be confident to go about their business.”

Productivity growth – or lack thereof – is a well-known issue weighing on the economy that is firmly on the minds of governments and economists, although finding a solution for it has proved exceptionally difficult so far.

We’re into questions for the RBA governor now, but she’s brought up a topic without being explicitly asked about it.

“Before anyone asks, no, the board did not discuss an interest rate cut at this meeting,” she says.

“It only discussed a raise and a hold.”

A couple of questions later, she reiterates that point – so clearly wants to avoid giving the impression that the fight against inflation is already won.

Michele Bullock has started her press conference with a particularly blunt warning: rate hikes are not off the agenda.

“The forecasts are uncertain, and there are upside risks to inflation,” she says.

“So, we’ll need to see some further progress before the board can be confident we’re going to get inflation back to target with current monetary policy settings.

“The board will raise interest rates further if that is what is required to bring inflation down in a timely way.

“The board will be closely watching for evidence of upside risks to inflation materialising.”

She also says today’s pause was a case of wanting to wait and see before making another move.

“The board… decided to leave the cash rate target unchanged at this meeting, to allow more time to assess whether the economy is evolving as expected,” she says.

Just to emphasise the point we made earlier – that a further rate hike (or hikes) is still very much on the table – here’s some analysis from Josh Gilbert of eToro.

“Nobody expected fireworks from the RBA today, and a unanimous hold at 4.35 per cent is exactly that,” he said.

“But this is still a central bank with its hand firmly on the rate lever. The board says it’s focused on making sure high inflation doesn’t become embedded.

“After three hikes this year that’s a clear signal it won’t hesitate to move again if the job isn’t done.

“Patience from the board today should not be mistaken for comfort, because inflation is still a problem…

“Governor Bullock’s press conference will matter as much as the statement, because the message is clear: they won’t be afraid to act if inflation misbehaves.

“That makes every inflation and jobs print between now and December key, and each one will move rate expectations.

“This is very much a pause in the purest sense, with the door to another hike still open, but the RBA will be hoping it doesn’t need to walk through it.”

Speaking of Michele Bullock, she’s just minutes from giving her post-decision press conference. We’ll bring you all the key details from what she has to say.

Along with its statement about today’s decision, the RBA has also released its quarterly Statement on Monetary Policy – its quarterly set of forecasts and overview of the economy.

Looking at the headline figures, there’s good and bad news.

Let’s start with the good: the central bank believes inflation has already hit its peak and will continue to slow from here.

It is forecasting headline CPI to ease slightly to 3.6 per cent by the end of the year, and core inflation to slow to 3.3 per cent by then (the current figures are 3.8 and 3.6 per cent respectively).

It’s worth noting not everyone supports this outlook.

“We’re more cautious,” Oxford Economics Australia’s Harry Murphy Cruise said.

“We forecast underlying inflation to end the year at 3.6 per cent, following a stronger Q3 print as price pressures continue to filter through to households.

“The bad news is that the RBA doesn’t believe inflation – both headline and underlying – will hit the mid-point of its 2-3 per cent target until June 2028, almost two years away.

So clearly a rate cut isn’t on the agenda anytime soon.

Another key takeaway from the RBA’s post-meeting statement: the central bank really is quite unsure about how this inflation fight is going to play out.

No one will be shocked to hear the conflict in the Middle East is the main culprit here.

“There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation,” the statement reads.

“Resolution of the Middle East conflict remains uncertain, and there are scenarios where inflation is higher and activity lower than forecast.

“Global oil supply will take time to recover, maintaining upward pressure on global energy prices and inflation, in which case domestic inflationary pressures could be higher than expected.

“A period of prolonged uncertainty may also cause growth to be lower overseas and in Australia.”