The Aussies are taking a hit in interest rates – which is a sign of when much-needed relief will finally arrive

Australian home borrowers have been dealt a blow in the Melbourne Cup – with a new warning about inflation and another possible rate hike as they missed out on yet another relief.

The Reserve Bank kept the cash rate unchanged at a 12-year high of 4.35 percent on Tuesday afternoon, warning that inflation would not moderate “sustainably” until late 2026.

That would also happen after inflation soars again next year, following the expiration of the federal government’s temporary $300 electricity rebates.

“Policy will need to be sufficiently restrictive until the administration is confident that inflation is moving sustainably toward the target range,” the report said.

The RBA has also warned it could still raise rates, despite borrowers in Canada, New Zealand, the European Union, the US and Britain already getting some relief this year.

“This reinforces the need to remain vigilant about upside risks to inflation and the board is not commenting on anything in or out,” the board said.

Governor Michele Bullock left open the possibility of another rate hike, even though financial markets are not betting on a rate hike in Australia because inflation in the services sector is still at high levels.

“This last part of reducing inflation is not easy or straightforward,” she told reporters on Tuesday.

Australian home borrowers have taken another blow just half an hour before the Melbourne Cup as interest rates remained on hold (pictured is a home inspection in Sydney)

“The reason I say we’re not ruling anything in or out is we think there are still some risks on the upside.”

Charu Chanana, chief investment strategist at Saxo Asia Pacific, said the Reserve Bank was deliberately trying to undermine expectations of a rate cut.

“The RBA remains on the hawkish side of the global central banking spectrum as it continues to avoid clear signals of rate cuts,” she said.

The RBA also released a statement on monetary policy’s forecast that headline and underlying inflation will not return to the midpoint of the 2 to 3 percent target ‘sustainably’ until late 2026.

It warned that Prime Minister Anthony Albanese’s $300 electricity rebates would have only a temporary impact on the cost of living, with inflation expected to rise again in late 2025 after that relief expires.

Australia’s headline inflation fell to a three-and-a-half-year low of 2.8 percent in the period to September, putting it within that target range.

But underlying inflation was higher at 3.5 percent when the one-time effects of the federal government’s $300 electricity rebates and falling gasoline prices were excluded from the quarterly data.

“We need to focus on what the momentum is,” Ms. Bullock said.

“It will happen next year, but it will happen gradually.”

Services inflation was even higher at 4.6 percent, even though goods inflation was low at 1.4 percent, according to Australian Bureau of Statistics figures.

“While headline inflation has fallen substantially and will remain lower for some time, underlying inflation is more indicative of inflation momentum and remains too high,” the RBA said.

Underlying inflation, also called the trimmed average, would fall to 3 percent in June 2025, but would not fall to 2.5 percent until December 2026.

Governor Michele Bullock left open the possibility of another rate hike, even though financial markets are not betting on a rate hike in Australia as services inflation remains at high levels

The decline in the consumer price index, also known as headline inflation, was also seen as a temporary phenomenon, with quarterly electricity rebates set to expire in June next year.

“This was as expected due to the decline in fuel and electricity prices in the September quarter. But some of this decline reflects temporary relief in the cost of living,” the report said.

According to the Reserve Bank’s new forecasts, published on Tuesday, headline inflation would rise again to 3.7 percent by December 2025.

The Reserve Bank also hinted it would be monitoring the outcome of the US presidential election, with Republican Donald Trump the betting market’s favorite to return to the White House with a plan to impose double-digit tariffs on imported goods to impose.

“The board will continue to rely on the data and evolving assessment of risk to guide its decisions,” the board said.

‘In doing so, she will pay close attention to developments in the global economy and financial markets, trends in domestic demand and the outlook for inflation and the labor market.’

Ms Chanana said the RBA was frustrated that financial markets were still expecting rate cuts in early 2025.

“That clearly has no impact on the markets, especially on a day when markets are awaiting US election results in a closely tied race, as well as further stimulus announcements from China,” she said.

The big four Australian banks – Commonwealth, ANZ, Westpac and NAB – all expect the RBA to cut rates in February for the first time since late 2020.

The futures market now expects three rate cuts in 2025, but will not see any relief until May.

The November meeting was the second to last for 2024, with the RBA meeting again on December 9 and 10.