Bullock no April fool: Inflation fails to sway RBA to cut rates

In its second meeting of the year today, the Reserve Bank of Australia (RBA) confirmed the cash rate will remain unchanged.

While mortgage holders had a small amount of relief with the 0.25% rate cut in February, many will be disappointed cooling inflation has not yet kicked off the promised cycle of cuts just yet.

More than 13 consecutive months with rates at 4.35% took a major toll on mortgage holders throughout 2024. However, Mortgage Choice chief executive Anthony Waldron said the RBA's decision to keep the official cash rate on hold today "reflects the consistently cautious tone from board members".

"While I expect we’ll see another cut to the cash rate this year, the RBA will want to see the impact of the February rate cut flow through to the economy before making another change," he said.

Inflation still a thorn in the side

While today’s cash rate hold may be disappointing for many, Ms Bullock’s firm expectations around meeting inflation targets mean it is not a surprise.

Trimmed mean inflation – the bank’s preferred measure of the economy – has fallen two quarters in a row. Though good news at face value, the latest Australian Bureau of Statistics (ABS) put it at 3.2% which is outside the RBA’s 2-3% target.

'How interest rate cuts affect the property market': youtube.com/mortgagechoice

Governor Bullock has been specific with her language and messaging, repeatedly confirming her desire to see a sustained period of low inflation.

"Michele Bullock's conservatism has paid off well, with core inflation likely to finally land in the bank's 2-3% target at the end of this month," Mr Waldron said.

Thanks to this progress and the sustained downward trajectory of headline inflation over the last six months, homeowners can at least feel confident that the macroeconomic environment has softened substantially. 

Core inflation is not within the RBA’s target range, though two quarters of decline can only be a positive, with ABS' first quarterly figures for the year likely to be the catalyst for whether May really will see the next cut.

'The Reserve Bank of Australia and the cash rate': youtube.com/mortgagechoice

“This is the next key trigger for potential cuts," REA Group senior economist Eleanor Creagh confirmed.

“Inflation is moderating, with both headline and underlying measures easing further, reflecting the significant progress in bringing domestic inflation back under control."

Soft landing expected six months early

Treasurer Jim Chalmers' revealed in last month's federal budget address that the Treasury is expecting inflation to be back within the target band six months earlier than expected.

Dr Chalmers called the Labor government’s federal budget measures “a plan to help finish the fight against inflation" and said Australia is “in better shape than almost any other advanced economy”.

Treasurer Jim Chalmers presented the 2025 federal budget last week, just two months shy of the next election. Picture: supplied

This is positive news for home owners and prospective buyers, with more upticks in refinancing, selling and buying on the horizon.

"The February rate cut encouraged borrowers around the country to review their home loans," Mr Waldron said. "We saw an uptick in the number of borrowers looking to refinance over March, with the proportion of Mortgage Choice loan submissions for refinance rising month on month."

Three of the four big banks are still anticipating a further three rate cuts this year, with ANZ the outlier predicting just one more cut from the RBA.

Banks and rates

While there is never a guarantee big banks and lenders will pass on the benefits of a rate cut to mortgage holders, more than 100 lenders responded to February's cut, meaning the vast majority of banks are already being charged a new, lower rate of interest.

Buyers in the market for a property should not be discouraged by the RBA’s decision to keep the cash rate on hold this month, Mr Waldron explained.

"The cash rate is expected to fall further this year, and while this could increase your borrowing capacity, it will also increase competition from other buyers, which is why it's important to get advice from a broker so you you’re prepared when you find the right property," he said.

Home owners will now be waiting until three weeks after the May federal election for the RBA's next decision.

The next quarterly inflation figures from the ABS, which are due to be published on 30 April, will be the major determiner of whether Aussies will see the next rate cut in the first half of the year.