RBA interest rates: No sweet surprise for borrowers with cash rate to stay at 3.6 per cent

Hopes for another interest rate cut this year hang in the balance after signs of renewed inflation pressure spooked the Reserve Bank.

The RBA’s board held its cash rate unchanged at 3.6 per cent in a unanimous decision on Tuesday.

Governor Michele Bullock was upbeat that Australia’s economy was in recovery mode but warned that the war against inflation may not yet be won.

“Inflation remains within the target range but recent data indicates there could be a bit more upward pressure than we thought in August,” Ms Bullock said.

“Services and housing inflation were a little higher than we were expecting.

“I don’t think it suggests that inflation is running away. But we do need to be a little bit cautious.”

The full impact of three previous rate cuts has also not been fully felt, she said.

Yet despite the cost of living worry, Ms Bullock declared the economy was overall “in a good spot”, with “welcome” signs of a recovery and unemployment close to historical lows.

The chances of a fourth rate cut in November or December had already been line ball even before the central bank’s sobering message on inflation.

Asked whether the RBA agreed with that view, Ms Bullock gave a subtle indication that markets were likely on the money.

“I can’t say whether or not they’re right or they’re wrong … but we’re looking at the same data they are,” she said.

EY’s Cherelle Murphy said “the case for further rate cuts is a little softer”.

But hard-up households hoping for relief should not abandon hope just yet.

“With the Governor noting interest rates were probably slightly restrictive, economic growth still muted, and employment growth mildly slowing, we continue to expect at least one more rate cut will be needed to balance supply and demand,” Ms Murphy said.

IG analyst Tony Sycamore said the decision had been “hawkish” — meaning the RBA sounds cautious about cutting.

“Whether the RBA opts for a 25 basis point cut in November will hinge on the September labour force report due in mid‑October and the crucial (quarterly) inflation print due October 29,” he said.

Analysts were concerned last week by hotter-than-expected inflation data but the full picture will not emerge until late in October when quarterly figures will be released.

The jobs market also remains in good shape, suggesting there’s no rush for the central bank to lower rates and unemployment remains near historic lows at just 4.2 per cent.

Improving growth figures and rising consumer spending led governor Michele Bullock to recently warn in Perth that there may not be many further rate cuts on the horizon.