RBA leaves interest rates unchanged at 4.35pc after first meeting of the year, ASX ends lower — as it happened

Whether you've been following along throughout the day, or just joined the party with the RBA decision this afternoon, thanks so much for your company.

We'll be back to do it all again tomorrow, but until then you can catch up on today's developments below, or download the ABC News app and subscribe to our range of news alerts for the latest news.

If you're after even more business news, we've got you covered — here's what's coming up on The Business tonight:

• David Chau brings us the RBA's first interest rates decision of 2024
• With no change to the cash rate, the big question now is — when will the RBA cut?  Former RBA insider now Westpac Group's Chief Economist, Luci Ellis, speaks to host Kirsten Aiken about the prospect of rate cuts and the revised inflation outlook
• And what's behind the recent drop in value of the Aussie dollar? NAB's Senior FX strategist Rodrigo Catril will join the program to explain.

Watch The Business on ABC News channel at 8.44pm, after the late news on ABC TV, and live or anytime on ABC iview. 

The ASX has finished lower for the day, closing down 0.6% to 7,581 points.

The drag on the local market came largely from miners off the back of lower commodity prices, while tech stocks also fell in response to the RBA's interest rate decision.

Given that, it's unsurprising that basic materials suffered the biggest fall of the sectors, down 1.2%, followed by technology which shed 1.1%.

Other sectors that ended Tuesday in the red were utilities (-0.9%), real estate (-0.9%), industrials (-0.8%), healthcare (-0.4%), financials (-0.4%), consumer non-cyclicals (-0.3%) and consumer cyclicals (-0.1%).

Only two sectors ended up in positive territory — energy (+0.4%) and academic and educational services (+0.2%).

As for the best performers of the day:

• Eagers Automotive +2.9%
• Lynas Rare Earths +2.8%
• Inghams +2.8%
• Sayona Mining +2.6%
• Graincorp +2.4%

While those with the biggest declines of the day:

• West African Resources -10.6%
• Cochlear -6.9%
• Arcadium Lithium -5.2%
• Champion Iron -4.4%
• Capricorn Metals -4%

Time flies when you have no shortage of economic queries to put to the governor of the RBA!

If you missed it, you can watch her full 45 minute press conference below:

This is a pretty interesting question that Michele Bullock just received — a couple of state premiers have given their two cents on how the RBA should do its job as they look ahead to their state budgets.

Queensland premier Steven Miles was one of them, who used the inflation data last week to say the RBA needed to cut interest rates.

(It's worth pointing out that it's an election year in Queensland...)

So what does Michele Bullock make of the advice?

After a bit of a dry laugh, she responds saying "they've got their tools, we've got our tools".

"The thing I would say about governments generally, not just state governments, is that they have a very challenging balancing act," she says.

"They have a lot of issues to address, and they've got to use their expenditure and their revenues in order to address those.

"I won't tell them how to do that, they are best placed to figure that out."

She adds that it's important for the economy to have infrastructure and capital stock that encourages growth, which is part of what governments do.

"This is their challenge, they've got to, on the one hand, deliver these things, but they've got to be mindful of their impacts on their spending and so on," she says.

So, does she have a message for state premiers weighing in on what the RBA should or shouldn't be doing?

"I have no message for them, but they do have a challenge, and we will work with what we've got, and they can work with what they've got," she adds.

This is a pretty key question, given that the RBA doesn't expect inflation to be below 3 per cent until the second half of 2025.

Michele Bullock said she doesn't have a definite answer, but it's definitely something the board will be considering carefully.

"The new statement on the conduct of monetary policy says we should be aiming for the midpoint of the range (2.5%)," she responded.

"That's sort of ideally where we want to see it because, if you're sort of at the top or bottom, the risks of being pushed out, obviously, are higher.

"Would we need to wait for it to be in the range?

"Absolutely I think that's a question that remains to be seen.

"What we need to be convinced is that it's moved enough and we're convinced that it's going to get there and it's going to be sustainably staying there. I can't give you a timeline on that."

The ABC's David Chau asks RBA governor Michele Bullock what keeps her up at night, what are the biggest risks to Australia's economy.

She joked that she'd like to think nothing keeps her up at night, but that's not true.

"What worries me most is that we don't manage to bring inflation back down to target without collateral damage in the labour market," she responds.

That could happen if there are renewed supply shocks coming from overseas, such as wider conflict in the Middle East or more shipping disruptions in the Red Sea and Panama Canal.

She's also deeply worried about what Donald Rumsfeld would have called the "unknown unknowns".

"What's going to come from left field, that's what worries me," she added.

Everyone please give a very warm welcome to Ms Taylor Alison Swift, who is making her appearance on the markets blog *and* the RBA's post-rates meeting press conference.

(And a day after the Grammys, no less!)

Bullock was just genuinely asked a question about Taylor Swift and her impact on inflation — specifically, services inflation.

She says that monetary policy (aka, rate hikes) doesn't directly impact services inflation — like Taylor Swift tickets — but has an indirect impact because it can be passed on through business costs.

"On Taylor Swift tickets, I'd say that from my own experience that my kids put money away to do it," she says.

"They forewent over things in order to be able to afford Taylor Swift [tickets].

"People are deciding what's really important to them and what's not important to them, and clearly for a lot of people, Taylor Swift is very important."

The ABC's Peter Ryan just asked whether the rate rise in November was a mistake, given weak economic data in December and the RBA's downwardly revised economic forecasts.

Michele Bullock says the RBA "didn't make a mistake" and was about balancing risks.

The RBA clearly sees the risk of inflation staying higher for too long as a bigger risk than slowing economic growth too much by being too aggressive on interest rates.

Ms Bullock basically said the bank can cut rates if it turns out that inflation keeps falling faster than it expects.

The board's post-meeting statement also indicated that the RBA is still far more worried about inflation than slowing economic growth, rising unemployment and potential mortgage defaults.

"Returning inflation to target within a reasonable timeframe remains the Board's highest priority," the board noted in its post-meeting statement.

"This is consistent with the RBA's mandate for price stability and full employment."

The Statement on Monetary Policy noted that the risk of demand being softer than expected is higher unemployment. The RBA argues the risks of inflation taking longer to come down would be both higher prices and higher unemployment.

Ms Bullock has just been asked about whether rate cuts can be completely ruled out how, given the RBA won't hesitate to lift rates if it needs to.

She repeats that the central bank won't rule anything in or out.

"I would say we have maintained the option that there might need to be more rate rises, but the option is there," she says.

Bullock reiterates an earlier point, that mortgage holders are sweating in the prospect of rate hikes (and rate cuts).

"But the big issue that's confronting not just mortgage-holders, but everyone, is inflation. And the fact that inflation so high in so many parts of their lives at the moment is what's really hurting them," she says.

"What's really important here is that we address that issue for people, that will help mortgage-holders, I know that they're doing it tough. But it will also help renters, for example, who don't have mortgages, and also are experiencing these inflationary pressures.

"So, in the end, I think that's why we need to stay the course."

Bullock has been asked about the implications of the revisions to the Stage 3 tax cuts on inflation, given people tend to spend.

She says it's not likely to be an issue for the RBA with its inflation forecasts.

"I think the very short answer to that is — I don't think it's a material issue," she says.

"If you look at Treasury's analysis, which was published on the website, they actually did a little bit of analysis to look at what might happen depending on different marginal propensities to consume.

"The bottom line really is that the fiscal envelope is the same. It's the same amount of money being handed out to households, but distributed slightly differently.

"We don't think it has any implications for our forecasts."

Michele Bullock begins her press conference with a short introduction,  and tells us to keep in mind where we've come from — with the cash rate at "practically zero per cent" during the pandemic.

She says we've returned to "more normal" settings now, but we are now dealing with inflation.

Bullock says inflation hurts everyone and we have been used to it being quite low for a number of years, hence the rapid rise interest rates.

Inflation however still has a 4 in front of it, she says, and although the RBA board knows people are doing it tough, a "big reason" for that is because of inflation.

"We have made good progress, absolutely we have made good progress, but the job is not done," she says.

She reiterates the RBA's inflation forecast will return to the 2-3% range in 2025, and the midpoint in 2026.

It's a packed house at the first scheduled post-meeting presser by the Reserve Bank governor Michele Bullock.

The governor is just kicking off now.

RBA governor Michele Bullock is about to hold her first post-rates press conference for the year.

I'll bring you all the developments right here on the blog, but you can tune in with the livestream below 👇

Another change under the RBA review is that the governor will hold a press conference after every cash rate meeting to explain the board's rationale behind its decision.

If you're a long-time follower of interest rate decisions, you'll know that this is *quite* the departure from the communication we've had from the RBA in the past.

Currently, the best we get is post-meeting remarks by the RBA governor, followed by the release of meeting minutes a few weeks later, and sometimes the governor gives talks at industry events.

But the lack of communication from the RBA governor was highlighted as something that needed to change under the RBA review, given the decisions they make ultimately impact us all.

The solution? A press conference, to be held an hour after the board's decision is published at 2:30pm AEDT.

Essentially, that will allow journalists to question the RBA governor about the cash rate decision, the state of the economy, and other economic matters to ensure the central bank is as transparent and accountable as possible.

Stick with us on the blog and I'll bring you the latest from RBA governor Michele Bullock's first post-rates press conference at 3:30pm AEDT — around 10 minutes away.

(And spoiler alert, you'll be able to watch it too — I'll drop a livestream a little closer to the time.)

Since the RBA last lifted rates in November, we've had a fair bit of economic data come through that indicates some signs of weakness — namely weaker jobs figures, a drop in retail sales, and softer-than-expected inflation.

So, did the RBA overdo it by hiking in November? Finance presenter Alicia Barry put that very question to Cherelle Murphy, the chief economist at EY Oceania.

(The short answer? Maybe, but it's too early to tell.)

Here's her full answer:

"There is always a chance that the Reserve Bank overshoots towards the end of a cycle but I think it would be way premature to suggest that's happened this time.

"That's because inflation is still above the target band. Inflation is the number one concern and it's running a 4.1% whereas they want it to be somewhere between 2-3.

"I would also say there is still a number of inflation risks on the horizon and actually coming through the economy currently, so the strong jobs market is definitely creating a tight situation for labour and we may not have seen the end of wage increases.

"There is also a really hot housing market, we've had international shipping rates go up, and we've of course got the conflict in the Middle East.

"All of these things could potentially impact our imported inflation, such as energy.

"So I think the Reserve Bank is playing it safe and that's the right course of action at the moment."

The Reserve Bank has released its latest forecasts for the economy.

While lowering its inflation forecasts to reflect the latest December quarter Consumer Price Index, which came in well below its previous expectations, it appears to be wedded to its view that services inflation is sticky and will take a long time to tame.

The RBA has taken 0.6 of a percentage point off its forecast for inflation over the year to June 2024 and, at 3.3%, expects the headline number to be within a whisker of the 2-3% target.

However, it took only half as much off the forecast for its preferred "trimmed mean" measure, which it expects to be 3.6%.

More importantly, it then expects progress in reducing inflation to slow, trimming little off its forecasts for 2025, with inflation only creeping under the top of the target band by the end of that year.

Hence why the RBA board decided to say rate rises are still potentially on the table, rather than admitting rates had peaked.

But it's not consumer spending that will prop up the economy and stop inflation coming down faster.

The RBA has slashed 0.8 of a percentage point off its household consumption forecast for the year to June 2024, a key reason why it has taken half a percentage point off its GDP forecast, which is for annual growth of just 1.3 per cent.

The main thing propping up demand is expected to be government spending, revised up by 1.3 percentage points to 2.2 per cent, while business investment is expected to grow 1.2 per cent over the year to June, before accelerating into 2025.

Treasurer Jim Chalmers has just addressed the RBA rate decision during Question Time (the first one of the year!) at Parliament House.

He said the RBA decision to keep rates on hold would be "welcome relief for Australians who are already under the pump".

"As the Reserve Bank said in its statement released a few minutes ago, there are encouraging signs in our economy, inflation is moderating, but they recognise, as we do, that inflation is still too high in our economy," he said.

"That's why this decision and inflation figures that we saw last week, they do show that we're making and encouraging progress in this fight against inflation."

Having been locked up for 90 minutes in the RBA library (yes it has one) to read the 55-page quarterly Statement on Monetary Policy, and now having read the bank's one-page post-meeting statement, it's apparent that it wants to push back on any talk of rate cuts.

Not only did the statement pointedly note "a further increase in interest rates cannot be ruled out", but the RBA believes there is still excess spending in the economy.

"The level of demand continues to exceed the economy's ability to supply goods and services," it noted in its Statement on Monetary Policy.

But that spending isn't coming from Australian households.

"Demand has been supported by strong growth in business investment, public sector spending and spending by international students and tourists," the RBA noted.

But, given the RBA largely has only one blunt tool to whack demand - interest rates - it looks set to keep using that tool to keep beating a group who are already slashing their spending anyway.