RBA Cash Rate Stays At 4.35%: What This Means for Australians 

The Reserve Bank of Australia (RBA) has decided to keep the cash rate steady at 4.35% in its final monetary policy meeting for 2024. 

This marks the ninth consecutive hold since the last increase in November 2023. While this decision was widely anticipated, it carries significant implications for households, businesses, and the economy as a whole.  

Let’s explore what this means for Australians and how it might affect your finances. 

Why Did the RBA Hold Rates? 

The RBA’s decision to maintain the current cash rate reflects its effort to balance inflation control with economic stability. Several factors influenced this choice, including the following: 

• Inflation remains above target: While headline inflation has dropped significantly from its peak in 2022, underlying inflation is still at 3.5%, above the RBA’s target range of 2-3%. The RBA does not expect inflation to sustainably return to the midpoint of this range until 2026. 

• Tight labour market: Despite weak economic growth, unemployment remains relatively steady at 4.1% as of October 2024—up from 3.5% in late 2022. Strong employment figures have supported household incomes but also contributed to persistent inflationary pressures. 

• GDP growth is at a snail’s pace: Australia’s GDP grew by only 0.8% over the past year, its weakest pace outside the pandemic in decades. Consumer spending is subdued due to high interest rates and a decline in disposable income. 

The RBA has stated that its top priority is bringing inflation back within its target range while maintaining economic stability. 

How Does This Impact Households? 

For many everyday Australians, the decision to hold rates means continued financial pressure. 

Those with variable-rate mortgages will see no relief in their repayments. For example, on an average loan of $642,121, monthly repayments remain around $3,937 based on the Australian government’s mortgage calculator. Fixed-rated borrowers nearing the end of their terms may also face a significant jump in repayments when they transition to higher variable rates. 

With interest rates staying high, households have less disposable income to spend on non-essential items. Families are now prioritising essentials over luxuries, which could result in a decrease in retail spending during the Christmas season. 

Moreover, rising living costs continue to strain budgets. With groceries and utilities remaining expensive, there’s little room for discretionary spending or savings. 

How the Cash Rate Influences Auction Activity 

Auction clearance rates have been decreasing across Australia’s capital cities as high interest rates weigh on borrowing capacities and dampen buyer demand. 

According to CoreLogic, the national preliminary clearance rate dropped to 62.4% as of December 2024, its lowest level this year. Sydney, in particular, has seen a significant decline in clearance rates. 

The RBA’s decision to maintain the cash rate at 4.35% has had a direct impact on auction markets. Higher rates have reduced the amount buyers can borrow, limiting their ability to compete in auctions or purchase properties at higher price points. 

Uncertainty about future rate cuts and financial pressures have also made buyers more cautious, contributing to lower clearance rates. Rising property listings have created more options for buyers, reducing competition and driving down clearance rates. 

What Does This Mean for Businesses? 

The rate hold also has implications for businesses in Australia. For starters, consumer demand might decline. High interest rates and reduced disposable income mean consumers are cutting back on spending, posing a challenge for retailers and hospitality businesses during peak season. Sectors that rely on discretionary spending may experience slower growth in sales as well. 

Rising borrowing costs make it more challenging for businesses to allocate a budget for new projects or expand operations. Smaller businesses, such as startups, may struggle more than larger firms due to tighter cash flows and limited access to credit. 

How the Cash Rate Impacts Property Investors 

Property investors are among the most affected by the RBA’s decision to hold cash rates. The relationship between cash rates and property investment is complex, influencing borrowing costs, rental yields, property values, and overall investment strategies. 

Reduced Affordability & Borrowing Power 

Investors face stricter lending criteria as banks reassess borrowing capacities in a high-rate environment. For example, an investor who could previously borrow $500,000 may now only qualify for a $350,000 loan. 

New investors may also find it harder to enter the market due to reduced affordability and increased upfront costs. 

Increased Rental Yields and Cash Flow Opportunities 

While higher rates pose challenges, they also create opportunities for property investors through rental market dynamics. 

High interest rates discourage potential homebuyers from entering the property market, leading to greater demand for rental properties. If your property is located in a high-demand rental area, you may benefit from a more substantial cash flow as rent increases. 

Although the mortgage repayments are higher, the increased rental income from your property investments can help offset these additional costs. 

What Are the Economic Implications? 

Here are some of the economic implications we may see due to the RBA’s decision: 

Slower Economic Growth 

Australia is experiencing what some economists call a “per capita recession,” where GDP per person is contracting even if overall GDP grows slightly. This trend highlights declining incomes and depleted household savings. 

Difficulty in Entering the Housing Market 

While home prices have stabilised after previous rate hikes, affordability remains an issue. Many potential buyers are waiting for rate cuts before entering the market. 

Prolonged Increase of Inflation Rates 

Although headline inflation has moderated, underlying inflation remains a complicated situation due to factors such as strong employment figures and supply constraints. These pressures are keeping rates higher for longer. 

What the Economists Are Saying 

Economists in Australia agree that the RBA’s decision to hold rates was a necessary move given current conditions. However, they also acknowledge that the move poses certain challenges. 

Paul Bloxham—HSBC’s Chief Economist for Australia, New Zealand and Global Commodities—predicts that rate cuts will begin in mid-2025 but expects only a “shallow easing phase.” 

Meanwhile, Eleanor Creagh, REA Group senior economist, says that rates will likely stay on hold through early 2025 unless there are significant changes in unemployment or inflation. 

These perspectives suggest that Australians should prepare for a prolonged period of high rates before any significant relief arrives. 

Key Takeaways 

• The RBA has kept the interest rate at 4.35%, citing persistent inflation and a resilient labour market as the determining factors. 

• Households face ongoing financial pressure with high mortgage repayments and reduced disposable income. 

• Economists predict rate cuts may begin in mid-to-late 2025 but caution that they will be gradual. 

• Businesses may struggle with weaker consumer demand and higher borrowing costs.