Aussies warned even more rate hikes could be coming – and when experts predict rates could drop

Australians hoping for further interest rate relief could face a wait of up to two years, with Reserve Bank Governor Michele Bullock warning that another rate rise remains possible and revealing that a cut was not even discussed at the bank’s latest meeting.

Speaking after the Reserve Bank left the cash rate unchanged at 4.35 per cent on Tuesday, Bullock said inflation was easing but remained too high, with the board still concerned that price pressures could force it to tighten monetary policy further.

‘Our forecasts are for inflation to ease through next year and be back around the midpoint of the target range by the end of 2027,’ she told reporters.

‘However, the forecasts are uncertain and there are upside risks to inflation. We still need to see some further progress before the Board can be confident that inflation will return to target with current monetary policy settings.’

Bullock made clear that the RBA was prepared to act if inflation failed to return to target quickly enough.

‘The Board will raise interest rates further if that is what is required to bring inflation down in a timely way,’ she said.

She warned that inflation could remain high because of the conflict in the Middle East, weak productivity and a tight jobs market.

‘The Board is determined to ensure that expectations of higher inflation do not become embedded in price and wage-setting decisions,’ she said.

In another blow to borrowers hoping for relief, Bullock revealed that lowering rates was not considered during the board’s deliberations.

‘The Board did not discuss an interest rate cut at this meeting. It only discussed a raise and a stay.

‘The arguments in favour of a hike really are the fact that inflation is still too elevated [and] we have got upside risks potentially if this conflict continues to go on in the Middle East.

‘The longer it goes on, the more likely businesses are to embed cost increases into their prices, put the prices up.’

The comments are likely to dampen hopes among mortgage holders that another rate cut is imminent, with the Reserve Bank forecasting that inflation will not return to the midpoint of its 2-3 per cent target band until the end of 2027.

Australia’s headline inflation rate eased to 3.8 per cent in June, down from 4 per cent in May, but it remains well above the RBA’s target range.

Compare the Market expert Chris Ford said stubborn inflation could keep interest rates high for the next two years.

‘The RBA’s primary focus is keeping inflation within its target band, so if price growth remains stubborn or the economy continues to show resilience, the RBA is unlikely to offer any relief. In fact, Michele Bullock hasn’t ruled out further rate increases to tame inflation.’

That could leave mortgage holders facing another prolonged stretch of elevated repayments after years of higher borrowing costs.

‘Many Australians have already spent the past few years adjusting to higher borrowing costs and new forecasts indicate they may need to continue planning for elevated repayments rather than banking on imminent relief.

‘The RBA has had to come down hard and fast to get inflation under control but unfortunately for borrowers, it’s often a lot slower to move in the opposite direction.’

Even if inflation continues to fall, mortgage holders should not expect the RBA to immediately respond with rate cuts, he warned.

‘Sustainability is key – when inflation is in its target range, the RBA will want a few months’ evidence that things are on the right track to ensure it’s not just a short-term trend.

‘Something that might speed up future cuts is a big rise in unemployment, but nobody wants that.’

The RBA expects falling house prices, driven by high interest rates and the Albanese government’s negative gearing and property tax changes, to further squeeze household spending.

‘Lower housing prices weigh on household consumption by reducing household net wealth and spending related to housing turnover,’ the RBA said.

Lower house prices could also reduce the incentive for developers to build, the RBA warned, further threatening the government’s target of 1.2 million new dwellings by mid-2029.

‘Lower housing prices weigh on household consumption by reducing household net wealth and spending related to housing turnover,’ the RBA said.

Treasurer Jim Chalmers said the RBA’s decision to hold rates showed the May budget was helping rather than adding to inflationary pressures.

‘This decision reflects the fact that inflation has been coming in well under the Reserve Bank and Treasury forecasts. Mr Speaker, in the Reserve Bank statement on monetary policy released today, they have downgraded forecasts for underlying inflation, and they have upgraded forecasts for growth,’ Chalmers said.

‘War in the Middle East is putting upward pressure on prices, and it’s weighing on growth around the world and in our own economy as well.

‘Now we did already have an inflation challenge in our economy, but the conflict is making that harder, and that’s why, from an economic point of view, a proper, enduring end to this war cannot come soon enough.

‘We desperately need to see an end to this war in the Middle East.’