The number the RBA needs to cut your mortgage

4 hours ago 1

In a world full of uncertainty, the Reserve Bank – or at least six members of its nine-member interest rate setting committee – wants certainty.

Financial markets and almost all professional economists had the RBA cutting rates on Tuesday. All four big banks certainly did. The decision to hold shocked them all.

Michele Bullock … looking for certainty in an uncertain world.

But governor Michele Bullock was quick to point out that this was a rate cut delayed, not denied.

“The decision today was about timing rather than direction,” she stressed.

That ultimate timing will be determined, in the short term, when the June quarter consumer price index is released on July 30. A good number, perhaps with underlying inflation around 2.6 per cent or 2.7 per cent, and the cash rate will be trimmed as soon as August 12.

That is the number that could deliver the certainty the bank’s board decided it needed – and provide home buyers some relief.

Good monthly inflation reports have not been enough because the bank is not convinced these are giving the fullest possible insight into economy-wide price pressures. Hence, the wait for the quarterly figures.

That’s been one source of uncertainty.

Donald Trump is another big source of uncertainty. On Tuesday morning, he whacked extra tariffs on 14 nations, including a 25 per cent impost on South Korea, a country which has a free trade agreement with the US, and the date growers of Tunisia.

In May, the bank actually discussed a half percentage point cut in interest rates because of the real fear that Trump’s tariff agenda could derail the global economy. Things have improved since, but no one can really say what the US president will decide from hour to hour, let alone day to day.

Bullock had to push back against suggestions that the Reserve is keeping its powder dry in case the global economy goes to hell in a handbasket because of Trump’s tariff disaster.

“We’re not keeping interest rates high just in case. We are not doing that. We are reacting to the domestic data, domestic inflation data and finding our way through it,” she said.

Another issue that has stumped the Reserve is the jobs market. Inflation continues to fall, yet unemployment refuses to climb, with employers adding more than 1.1 million staff since the bank started lifting interest rates in 2022.

This is more than uncertainty. This is downright unsettling for the bank and its models on how the economy is supposed to work.

For the first time in the bank’s history, the uncertainty over the timing of another rate cut was made public with the release of the vote of those assembled in the RBA’s meeting room. Three members disagreed with the decision to hold.

Over the decades, bank governors have talked about the consensus of board members about rate movements. Now the public – and the government – can see that there are differences of opinion.

This is effectively the last of the major reforms to the bank introduced by Treasurer Jim Chalmers, to bring the RBA into line with its global peers. The vote, the post-meeting press conference by the governor, two-day meetings and a better informed committee focused purely on interest rate settings are a good thing for the economy.

Not that the decision to hold did much good for Chalmers or Anthony Albanese, given millions of mortgage holders and business owners believed the bank would deliver some financial respite.

Chalmers and Albanese can, along with those millions of people, hope that the Reserve becomes more certain about the inflation outlook on July 30.

Otherwise, the post-election honeymoon currently being enjoyed by the government will come to an end.

And of that, you can be certain.