Calls from some quarters for the RBA to slip an interest rate cut into borrowers’ Christmas stockings have gone unheeded, with the Bank’s benchmark interest rate remaining at 4.35% following its December 2024 Board meeting. This closely-watched rate has now been set at 4.35% since December last year.

What kept the RBA from changing the status quo?

The short answer to this question was the first sub-heading in the RBA’s press release, which read ‘Underlying inflation remains too high’. The RBA’s preferred measures of underlying inflation are all still around 3.5%, a level still some way above the 2.5% mid-point for the Bank’s inflation target or 2-3%.

Of equal importance, on a look-ahead basis the RBA does not expect these underlying inflation measures to move back into the above-mentioned target range anytime soon – the Bank’s most recent forecasts (which were contained in its November 2024 Statement on Monetary Policy) do not have underlying inflation returning sustainably to the midpoint of the target until 2026. The RBA was at pains to point out that recent data on domestic inflation and economic conditions were still consistent with these November forecasts.

The RBA press release acknowledged that Australian economic data issuing over November had, on balance, been softer than expected.

It made mention of the underwhelming September 2024 quarter GDP data, which revealed a paltry 0.8% gain in annual economic growth. Abstracting from the subdued economic activity seen during the COVID-19 pandemic, this was the lowest increase in Australia’s economic growth since the early 1990s.

However, the RBA also emphasised the still relatively tight jobs market, with strong employment growth over the three months to October and still highish participation and job vacancies rates giving the Bank reason to stay on hold.

On the consumption front, the RBA press release stated that more recent information available to the Bank hinted at a pick-up in consumption in October and November (perhaps a bit of a Black Friday sales effect!)

The RBA’s rate deliberations were not swayed by the high level of uncertainty attached to the global economic outlook, which continues to be overlaid with a preponderance of waxing and waning geopolitical events.

As usual, the RBA’s rates decision press release stated that the RBA Board will continue to “rely upon the data and the evolving assessment of risks to guide its decisions”. But hopes spring eternal for borrowers. The RBA press release also noted that ‘some of the upside risks to inflation appear to have eased’, and noted that while the level of aggregate demand still appeared to be above the economy’s supply capacity, this all-important gap was continuing to close.