New warning for households as RBA keeps rates on hold

Households waiting for mortgage relief could be in for a shock, experts have warned, as the Reserve Bank held interest rates steady for a fifth straight meeting in June.

The RBA on Tuesday left the cash rate at a 12 year high of 4.35%, but didn’t rule out another rate hike if inflation takes too long to rein in.

"Inflation is easing but has been doing so more slowly than previously expected and it remains high," the RBA said in its post-meeting statement.

"The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out."

The RBA held interest rates steady at 4.35% in June. Picture: Getty

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In a press conference following the decision, RBA governor Michele Bullock confirmed the board discussed the case for a rate hike, but a rate cut was not on the table.

"No, the case for a cut was not considered," Ms Bullock said.

"I wouldn’t say that the case for a rate rise is increasing," she said. "What I would say – and I think we’ve tried to reflect this in the statement – is that there’s been a few things that have made the board alert to the upside risks."

It comes as recent inflation data shows consumer prices aren’t cooling as quickly as expected, while a strengthening jobs market and looming income tax cuts – set to kick in from July – are expected to underpin spending as households get more money in their pocket.

That could see struggling borrowers tread water until well into next year, with financial markets not anticipating the first cut until March 2025.

But one leading economist has warned a rate hike could be just around the corner.

Judo Bank chief economic adviser Warren Hogan says interest rates will need to get “closer to 5%” for the RBA to bring inflation back to target within a reasonable timeframe, predicting hikes in both August and November this year.

“The forces holding the economy back over the past two years will ease over the coming financial year as Australian governments inject tens of billions of dollars into household disposable incomes with tax cuts and cost of living relief,” Mr Hogan said.

“The RBA can continue to wait for inflation to come down. The problem with that strategy is that the longer inflation is in the economy, the harder it will be to get it out."

The latest forecasts from the RBA anticipate inflation will return to its 2-3% target range by the end of next year, but if this timeline is blown out the RBA may be forced to hike again.

PropTrack director of economic research Cameron Kusher said key inflation data - due to be released just ahead of the August rates decision - will help determine whether the RBA needs to lift rates again or adjust expectations for the timing of an interest rate cut.

“Although rate cuts are now expected in 2025, most still predict the next move will be down,” Mr Kusher said.

ANZ last week became the first big four bank to scrap forecasts of a rate cut this year, now expecting the RBA will remain on hold until February 2025.