The Reserve Bank of Australia (RBA) has wrapped up 2024 with its final monetary policy decision, announcing that the cash rate will remain unchanged at 4.35% for the ninth consecutive month. This decision, made at the Board’s meeting on Tuesday, keeps the rate at a 12-year high, a level maintained since November 2023 to combat persistent inflation.
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Key Highlights of the Decision
Inflation Still a Concern
While inflation has eased from its peak in 2022, the RBA acknowledged it remains above the desired target. According to the November Statement on Monetary Policy (SMP), inflation is not expected to return to the midpoint of the 2-3% target range until 2026.
“The Board is gaining some confidence that inflationary pressures are declining in line with recent forecasts, but risks remain,” the RBA said in its statement.
Focus on Global and Domestic Developments
Heading into 2025, the RBA emphasized its commitment to closely monitoring global economic conditions and domestic risk factors. The Board reiterated its resolve to bring inflation back to target and indicated that further actions might be taken if necessary to achieve this goal.
Treasurer’s Response
Australian Treasurer Jim Chalmers described the decision as aligned with market expectations. “It means that it is now well over a year since the last increase in interest rates,” he said.
Chalmers highlighted the government’s focus on easing cost-of-living pressures while managing the economic risks to growth.
“This has been our focus as a government … we know that people are under cost-of-living pressures, and that’s our primary focus,” Chalmers said.
Cost-of-Living Initiatives
To alleviate financial stress, the government announced key measures:
- A 10% pay rise for early childhood educators to support low-income workers.
- A reduction in HECS-HELP student loan balances, providing relief for students and graduates.
Economic Outlook and Predictions
Rate Cuts on the Horizon?
While the cash rate is expected to remain stable in the near term, economists predict a potential rate cut in the June quarter of 2025. This reflects a shift from earlier forecasts, which anticipated cuts in the first quarter of 2025.
Global Comparisons
Unlike some central banks globally, which have already begun easing borrowing costs, the RBA has maintained its relatively moderate rate increases. The Australian economy’s strong employment market and a less aggressive rate hike strategy have supported this approach.
Expert Advice for Borrowers
David Koch, economic director at Compare the Market, urged borrowers to take proactive steps to manage their finances rather than waiting for interest rate cuts.
“Give yourself an early Christmas present and find yourself a lower interest rate,” he advised. Koch noted that borrowers could save up to $571 per month on a $750,000 loan by refinancing from a rate of 7.24% to 6.09%.
This translates to a potential savings of $1,713 over three months, assuming the cash rate remains steady until February 2025.
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Australia’s Economic Context
Employment Strength
Despite global economic challenges, Australia’s employment market has remained resilient, providing a buffer against potential downturns.
Moderate Rate Approach
The RBA highlighted that its cash rate hikes were not as aggressive as those of other central banks. This strategy, coupled with strong employment figures, has helped the Australian economy navigate challenging global conditions.
Looking Ahead to 2025
As the year closes, the RBA’s decision provides a sense of stability for borrowers and businesses. However, with inflation still above target and global risks persisting, the central bank’s cautious approach signals that economic challenges remain.
For Australians, proactive financial planning will be essential as the economy transitions into the new year. Whether through refinancing, budgeting, or leveraging government support, taking action now can help households navigate the ongoing cost-of-living pressures.
Final Thought
As the Reserve Bank of Australia prepares for its first meeting in 2025, all eyes will be on global trends and inflationary pressures to determine whether the current policy stance can hold or if adjustments will be necessary.
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