RBA keeps cash rate at 4.35% in December: What’s delaying cuts?

By Peter Terlato · · 3 min read
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People walk past the Reserve Bank of Australia sign in Sydney, Australia

Despite headline inflation moving within the target range, the Reserve Bank of Australia (RBA) hasn’t budged on its decision to keep rates steady. What’s holding them back?

The RBA left the cash rate unchanged at 4.35% at its meeting on 10 December 2024. This is the thirteenth consecutive month since the Board last adjusted the cash rate.

Over the course of the year, Australia’s central bank has indicated that inflation, while on a downward trend, is a key concern requiring careful management. The bank’s aim has been to bring inflation back within its target range of 2-3%.

The Australian Bureau of Statistics (ABS) reported that the Consumer Price Index (CPI) came in at 2.8% in the September quarter , while the monthly indicator revealed further easing to 2.1% in the year to October , the lowest level since price spikes began around midway through 2021.

Despite this achievement, the Board has not reduced the cash rate.

The RBA acknowledges that while headline inflation has decreased to the desired level, underlying inflationary pressures remain, especially in sectors like services and wages.

"Measures of underlying inflation are around 3½ per cent, which is still some way from the 2½ per cent midpoint of the inflation target," according to the Statement on Monetary Policy .

RBA forecasts do not see inflation returning sustainably to the midpoint of the target until 2026.

Underlying inflation, measured by the annual trimmed mean, rose slightly in October to 3.5%, up from 3.2% in September. Until this particular price index can be reigned in, the Board will likely continue to leave rates unchanged. Keeping the cash rate steady is intended to curb demand without triggering a sharp economic slowdown.

What is trimmed mean inflation?

Not to be confused with a curmudgeon sporting a new haircut, the trimmed mean – or underlying inflation – is a measure of inflation that excludes extreme price movements to give a clearer picture of ongoing cost trends. For example, if the prices of fresh fruit, electricity or fuel spike or drop significantly in a given period, these are excluded from the calculation, allowing policymakers to focus on more stable, long-term price movements. View

A year-long descent from peak inflation 

The last time the cash rate changed was on 7 November 2023, just days after the September quarter CPI was released by the ABS. Annual headline inflation was tracking at 5.4%, but this was a sharp decrease from the December 2022 peak of 7.8%. 

While RBA Governor, Michele Bullock, recognised that inflation had passed its peak, the Board felt it was still too high and tacked a 25 basis-point hike onto the cash rate, bringing it to 4.35%.

Here’s a rundown of what happened since the last amendment to the cash rate:

  • Early-2024: Food and energy prices continued to drive inflation, though growth slowed.
  • Mid-2024: Annual inflation began to ease, showing a significant drop from previous highs, though still above the target range.
  • Late-2024: Underlying inflation rose to 3.5%, reflecting ongoing price pressures in certain sectors despite a fall in headline inflation to 2.1%.

When will the RBA cut rates?

Three of the Big Four banks remain aligned with their cash rate predictions, although the Commonwealth Bank (CBA) anticipates relief for borrowers sooner rather than later next year.

Big Four cash rate forecasts:

  • CBA: First cut expected February 2025, falling to 3.35% by December 2025.
  • Westpac: First cut expected in May 2025, falling to 3.35% by December 2025.
  • ANZ: First cut expected in May 2025, falling to 3.85% by August 2025.
  • NAB: First cut expected in May 2025, falling to 3.10% by June 2026.

Despite high rates, borrowers still have options

For homeowners, this means continued pressure on home loan rates. But Mozo finance expert, Rachel Wastell, has some sound recommendations, such as refinancing, for borrowers unsure of what their next step should be.

“The new year can be the perfect time to take a moment to reflect on where you’re at financially, and as a home loan is one of the largest debts you will probably face in your lifetime - it’s a great place to start,” Wastell said.

“If there’s one home loan lesson to take into 2025 from 2024 - it’s that no one should just accept the status quo when it comes to their mortgage. Just a half a percentage point difference on a $600k mortgage could save you tens of thousands of dollars over the 25 year loan term.

“Shop around, compare rates, and don’t forget about negotiating with your bank. Many are offering better rates for new customers, so it’s worth asking if they can offer you the same deal.”

You can read last month's Reserve Bank interest rates' update here.

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