Major blow for millions of Aussies with a mortgage as RBA leaves rates on hold - here's why there could be even more pain on the way

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The Reserve Bank has left interest rates on hold but strongly hinted more pain is possible for struggling home borrowers hoping for some relief soon. 

The cash rate is already at a 12-year high of 4.35 per cent and borrowers are paying 68 per cent more a month compared with two years ago - following 13 interest rate rises in 18 months.

But Governor Michele Bullock on Tuesday declared rates could still go up again - despite observing 'things are pretty bumpy'.

'We don't think we necessarily have to tighten again but we can't rule it out,' she told reporters in Sydney.

'If we have to, we will. If we really think that inflation is going to be persistent and significantly above our forecasts, we will tighten again.

'We've always felt that it was a bit too soon to declare victory and I think the numbers in recent weeks have demonstrated that for us.'

Ms Bullock also confirmed a rate rise had been seriously considered during the RBA's two-day board meeting.

'Yes, that was one of the things the board discussed,' she said. 

'So, the board did discuss the option of raising interest rates.' 

Australia's most powerful banker, on a $1million remuneration, acknowledged Australians were suffering from the most aggressive interest rate rises in a generation.

Governor Michele Bullock on Tuesday declared rates could go up again - despite observing 'things are pretty bumpy'

'The rise in interest rates that has been required to bring down inflation has been painful for many people,' she said. 

'Inflation is bad for everyone and we have to see the job through.

'The path will likely continue to be bumpy and we should all be prepared for that.' 

Australia's big four banks are also expecting a November rate cut but Ms Bullock said it was too soon to predict that when asked about optimistic borrowers.

'Well, I hope I didn't give them any impression that there would be an interest rate cut by the end of the year,' she said. 

'I certainly don't believe I ever gave people that impression.' 

Her monetary policy board said inflation was taking too long to moderate - with new forecasts showing price pressures will remain elevated into 2025.

'Recent information indicates that inflation continues to moderate, but is declining more slowly than expected,' the Reserve Bank said on Tuesday afternoon.

The RBA also suggested another rate rise was still possible despite borrowers already coping with the most severe pace of monetary policy tightening since 1989.

'The board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks,' it said.

'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 has updated its forecasts, predicting inflation will remain above its two to three per cent target into late 2025.

Tuesday's new statement on monetary policy forecast headline inflation, also known as the consumer price index, would only moderate to 3.2 per cent by June 2025 - down from 3.6 per cent in the March quarter of 2024.

The Reserve Bank has left interest rates on hold but hinted more pain is possible (pictured is Governor Michele Bullock)

Annual underlying measures of inflation, stripping out major price movements, were above the 4 per cent level in the March quarter.

This has seen the futures market rule out the prospect of a rate cut in 2024, and predict relief being postponed into the second half of 2025.

The RBA's updated forecasts also had the trimmed mean measure of inflation falling to 3.1 per cent by June 2025 - down from 4 per cent in March. 

The Reserve Bank, however, is still expecting both headline and underlying inflation to drop to 2.8 per cent by December 2025. 

Unemployment was only forecast to rise to 4.3 per cent by June 2025 - up from 3.8 per cent in March - adding to fears of higher wages potentially adding to inflation. 

'More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms' pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while the labour market remains tight,' the Reserve Bank said.

'The board will rely upon the data and the evolving assessment of risks.

'In doing so, it will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market.'

But the RBA has updated its forecasts, predicting inflation will remain above its two to three per cent target into 2025 (pictured is a stock image)

The Reserve Banks said low unemployment risked adding to services, as opposed to goods, inflation.

'The persistence of services inflation is a key uncertainty,' it said.

'It is expected to ease more slowly than previously forecast, reflecting stronger labour market conditions including a more gradual increase in the unemployment rate and the broader underutilisation rate.' 

Deloitte Access Economics partner Stephen Smith said the fact interest rates were kept on hold on Tuesday indicated rate rises had failed to tame inflation as expected.

'The fact that the RBA kept interest rates on hold after a stronger-than-expected CPI print for the March quarter may indicate that the central bank acknowledges that interest rates cannot easily tame supply-driven inflation,' he said.

Treasurer Jim Chalmers issued a statement on Tuesday afternoon stating the next meeting on June 17 and 18 would be almost eight months since the last RBA hike in November 2023.

'Today's decision by the independent Reserve Bank means by the time the board next meets we will be approaching eight months since interest rates went up,' he said.

Treasurer Jim Chalmers issued a statement on Tuesday afternoon stating the next meeting in June would be almost eight months since the last RBA hike in November 2023

'This period of rates on hold has provided stability in difficult times for Australian mortgage holders and small businesses.'

Dr Chalmers promised to ease inflationary pressures in the upcoming May 14 Budget. 

'Our main focus in the near term remains easing inflation and helping relieve cost-of-living pressures,' he said.

'The May Budget will be carefully calibrated to the economic circumstances, striking the right balance between getting inflation under control, easing cost-of-living pressures, supporting sustainable growth and building fiscal buffers in an uncertain global environment.'

A borrower with an average, $600,000 mortgage has, since May 2022, seen their monthly mortgage repayments surge by 67.7 per cent to $3,868 - up from $2,306. 

That means annual repayments are now $18,744 higher than they were two years ago, based on a Commonwealth Bank variable rate climbing to 6.69 per cent - up from 2.29 per cent for those with a 20 per cent mortgage deposit.

Australian mortgage holders have been hit with the most aggressive rate hikes since 1989, sparking a cost of living crisis for the nation's 3.8million households servicing a mortgage.