The Reserve Bank of Australia (RBA) board chose to hold the nation's cash rate steady at 4.35% at its final meeting of 2023.

The decision was much anticipated by the market following November’s 25 basis point hike.

Here are the highlights from RBA Governor Michele Bullock’s official statement on today’s decision:

On the reasons behind today’s hold:

The RBA board determined the limited economic information it has received since the November meeting was, for the most part, in line with expectations.

Ms Bullock said the 13 cash rate hikes implemented since May 2022 are working to ease the supply-demand imbalance within the economy. 

"Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation, and the labour market," she said.

On inflation and the economy:

The board noted that the October Consumer Price Index (CPI) read suggested inflation has continued to moderate, while inflation expectations remain consistent with the central bank's target of 2% to 3%.

Increased wages growth in the September quarter was already expected.

Meanwhile, wages aren't forecast to increase much further and growth is consistent with the inflation target, provided productivity picks up.

Conditions in the labour market were also said to have continued easing, though remain tight.

On the RBA board’s priorities and outlook:

The RBA board's top priority continues to be returning inflation to its target level.

Ms Bullock noted there are still significant uncertainties around the outlook as services inflation proves persistent overseas, with potential it could also remain stubborn in Australia.

The central bank will be keeping a close eye on the Chinese economy, lagging impacts of previous cash rate hikes, and household consumption. 

She concluded by saying the RBA board "remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome".

The decision to hold the cash rate came on the back of the most recent CPI read, suggesting inflation is trending downwards.

Inflation slowed to 4.9% on a monthly basis in October.

“Conditions are expected to continue to soften as the full impact of monetary tightening to date is yet to be felt and inflation is likely to continue moving lower as a result,” PropTrack senior economist Eleanor Creagh said.

Ms Bullock has previously voiced the central bank’s low tolerance for uncontrolled inflation.

It currently expects to achieve its inflation target by late 2024.

Many experts, Ms Creagh included, believe November’s hike might have brought the cash rate to its peak.

Though, NAB group chief economist Alan Oster is expecting another hike in February, with the upcoming quarterly CPI read – to be released in late January – cited as the basis for the bank’s view.

House prices have thus far shown resilience as rising rates have driven home loan costs upwards.

“The PropTrack Home Price Index shows that property prices have defied expectations and home values have remained resilient to higher interest rates this year,” Ms Creagh said.

“After falling 4.02% from March 2022 to December 2022, national prices are now up 5.53% from the low point recorded in December 2022. This brings them 1.29% above their previous peak to a fresh record high.

“The decision by the Reserve Bank to hold the cash rate steady in December will maintain both buyer and seller confidence.

“Together with a shortage of new home builds and challenging conditions in the rental market, prices are expected to continue rising, though the pace of growth will continue to slow.”

Image by Diliara Garifullina on Unsplash.