Mortgage holders and business owners shouldn’t count on any rate cuts on Tuesday.
The interest rate stranglehold on many businesses and continued subdued economic growth are set to be a central topic of discussion at the Reserve Bank of Australia’s final monetary policy committee meeting of the year.
The RBA’s board of governors will meet on Tuesday and announce its final cash rate decision for 2024 later in the morning.
The Australian share market is pricing in a 91% chance that the cash rate will remain at 4.35% (where it has been since December.
Australian stocks are pricing in a 91% chance of interest rates being kept on hold on Tuesday. Photo: NewsWire/Gaye Gerard
Only 9% of traders believe rates will fall to 4.1% on Tuesday.
Some outlier investors betting on a rate cut were warned in the last week of November when data showed spending on mineral exploration fell by 4.
Inflation remained steady at 2.1% in October, the lowest annual rate since July 2021, but that was not enough to keep stocks on track for easing hopes as the odds of a rate cut slipped to just 3% at the end of last month.
Treasury Secretary Jim Chalmers will likely have to wait for a rate cut. Photo: NewsWire/Nikki Short
It appears that the labour shortages are not sufficient to fill the gaps across the economy for the Reserve Bank to cut interest rates just yet. Some believe that Australian businesses are not producing or selling enough products or providing enough services to grow and raise wages.
In line with this stagnation, non-discretionary household spending remains at its lowest level in three years. In the minutes of last month’s meeting, the RBA board noted that aggregate demand for goods and services continues to exceed supply.
Central bank governor Michel Bullock and the central bank’s board have kept interest rates unchanged since December. Photo: NewsWire/Nikki Short
“But the gap between supply and demand is narrowing and inflation is slowly declining,” the committee said.
While government electricity rebates and pay rises for public sector jobs have kept the economy afloat, the private sector has been hardest hit by persistently high interest rates.
Australia’s economy grew by just 0.3 per cent last quarter, marking its seventh consecutive quarter of per capita decline. The setback means Australians are earning $4,310 less than they were 21 months ago.