RBA Holds Cash Rate Steady Amid Continuing Inflation Worries

The Reserve Bank of Australia (RBA) held its cash rate steady at 4.35% in a decision that offered little relief to mortgage holders, who are still reeling from previous interest rate hikes.

While the RBA's statement on monetary policy pointed to inflation peaking and easing by the end of the year, it also warned that inflation won't reach its target until June 2028, almost two years away. This undercuts any possibility of a rate cut in the near future.

The bank's own modeling assumptions put the cash rate at 4.4% to 4.5% by 2027 and 2028, suggesting that homeowners will continue to feel the squeeze of higher mortgage repayments. A homeowner with a $600,000 mortgage is paying around $272 more per month, or $3,265 over the next year.

The RBA's governor Michele Bullock emphasized that inflation remains too high and that the bank will act again if necessary, warning that the threat of higher inflation is still very real. The bank also pointed to a slowdown in housing prices and demand for new housing loans, which it attributed partly to interest rate hikes and government policy changes.

The statement highlighted the potential risks posed by a boom in artificial intelligence investment, including inflationary pressures on construction capacity and semiconductor-related costs globally. While productivity benefits from AI investment are expected to come through with a lag, how long this will take is unclear.