Respite for mortgage holders as RBA holds rates steady for second month
By Shane Wright and Rachel Clun
Home buyers, renters and businesses could be spared any further financial pain after the Reserve Bank held interest rates steady for a second month while signalling the economy is on track for a soft landing.
Major banks including Commonwealth Bank and National Australia Bank revised down their expectations for future rate increases after the RBA kept the official cash rate at 4.1 per cent on Tuesday – the first time since March and April last year it has made no change at consecutive meetings.
It is the first time since March and April last year that the RBA has left the cash rate unchanged at two consecutive meetings.Credit: Kate Geraghty
The bank has lifted interest rates 12 times since May last year, driving up monthly repayments on an average $600,000 mortgage by more than $1350. About 800,000 people with fixed-rate loans, who borrowed when the cash rate was at a record-low of 0.1 per cent, will this year endure sharp increases in their repayments.
Recent figures show the economy is slowing under the weight of the RBA’s monetary policy tightening – the most aggressive since the 1980s.
Retail turnover has declined as households pull back on spending while inflation eased to 6 per cent in the year to June – down from the December peak of 7.8 per cent but still above the RBA’s target band of 2 to 3 per cent. Data released on Tuesday showed private home approvals falling another 1.3 per cent in June to be down 17.4 per cent over the past year.
While warning further rate rises may be needed, RBA governor Philip Lowe said previous increases were now making the balance between supply and demand across the economy more sustainable.
He said there were signs the economy was responding to previous rate rises enough to suggest inflation would come down while leaving the jobless rate at a historically low level.
“The recent data are consistent with inflation returning to the 2-3 per cent target range over the forecast horizon and with output and employment continuing to grow,” he said.
The bank is still concerned about inflation for services and the flow-on impact of falling cost pressures from overseas, but Lowe – at his second-last meeting in charge of the Reserve – also noted consumers were responding to rate rises by reducing their spending.
Treasurer Jim Chalmers said the decision to keep rates steady would be a relief for mortgage holders.
“This is a welcome reprieve for Australians already doing it tough enough. Australians are still under the pump, even as inflation moderates and even after this decision today,” Chalmers told parliament.
Chalmers said the government’s priority was to roll out cost of living relief to people in the most need by helping with their out-of-pocket health costs and electricity bills.
Shadow treasurer Angus Taylor said while the decision was a welcome reprieve, the bank had made clear that more rate rises might be necessary, and it would take a long time for inflation to return to its target range.
“So there’s clearly still more work to be done here, and the fact of the matter is that the government plays a big role in this,” he said.
Deloitte Access Economics partner Stephen Smith said while inflation pressures remained, further rate rises would do little to slow costs growing in key sectors.
“As is widely accepted, the cost of residential rent and utilities will be a key source of inflation over the next 12 to 18 months. Importantly, these cost pressures have arisen as a result of supply pressures, not excessive demand,” he said.
“As a result, higher interest rates – which work to dampen demand in the Australian economy – are ineffective at combating this type of inflation. In fact, they are likely to make the situation worse by delaying a recovery in dwelling construction.”
Oxford Economics Australia’s head of macroeconomic forecasting, Sean Langcake, said the RBA would need compelling arguments to lift rates again.
“It looks increasingly likely that we have reached the peak of the cash rate cycle. We now expect a protracted pause in rate movements from the RBA that will extend deep into 2024,” he said.
Ahead of the meeting, NAB was expecting the cash rate to reach 4.6 per cent. It now believes the Reserve will impose just one more rate increase on the economy, most likely in November, and even that was likely to be a line-ball decision.
CBA, which had expected the cash rate to peak at 4.35 per cent, is forecasting it to stay at 4.1 per cent.
CBA senior economist Belinda Allen said it now appeared a further rate increase would be difficult to justify.
“We expect the hurdle to another rate is high. It would take an upside surprise to the economic data from here, namely on prices and/or wages, for the RBA to shift its assessment of the outlook,” she said.
Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter here.