philip lowe rba
RBA Governor, Philip Lowe. Source: RBA website.
  • The official cash rate remains at 4.10%
  • The last rate rise was in June
  • The latest cycle has seen 12 rate hikes so far

The Reserve Bank of Australia (RBA) has put a pause on interest rate rises for the second time this cycle, with the first pause occurring in April this year.

This means the official cash rate remains at 4.10%.

Experts were divided about what the outcome of today would be.

In the lead-up to today’s decision, Finder‘s RBA Cash Rate Survey of 39 experts found a slim, 49% minority believing the Reserve Bank would increase interest rates.

Reserve Bank Governor, Philip Lowe, said in a statement:

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so.

“In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month. This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook.

Lowe added, “Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline. But inflation is still too high and will remain so for some time yet.”

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.

“The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the economic outlook and associated risks.”

How many interest rate rises so far?

Since the historic-low interest rates of 0.1% during Covid, the RBA hiked the official cash rate up 12 times to reach 4.10%.

The rate hikes began in May 2022, taking the cash rate to 0.35%, with April 2023 seeing an end to the ten consecutive rate rises.

While rates were on pause in April, the hikes began again in May 2023.

Lower-than-expected inflation figures could be a driver

Those who believed a rate pause would come today said potential drivers included the lower-than-expected inflation figures announced by the Australian Bureau of Statistics (ABS) at the end of June this year, along with strong jobs figures, a strong budget surplus, and more.

Ray White chief economist, Nerida Conisbee, said, “The RBA took a break this month and rates remained on hold. It is likely that slowing inflation was a key factor, in addition to the slowing economy.”

A rate hike ‘would have been surprising’

Mozo‘s banking expert said that the RBA indicated that its decision to raise the cash rate again in June was a close call that could have gone either way.

“As there has been little to surprise the RBA in the economic indicators over the past month, and the CPI result was better than expected, an increase at its July meeting would have been surprising.”

The right thing to do

Zippy Financial director and principal broker, Louisa Sanghera, said the pause on rates was the right decision.

“Common sense has prevailed today. Although, most banks were predicting a rise, I felt that rates would hold today.”

Louisa Sanghera, Zippy Financial

“There was no reason why there should have been an increase this month. We are seeing the continued downtrend in the Australian Monthly CPI Indicator as providing confirmation that inflation has now peaked.

“I think everyone will be pleased to have a breather from the 12 rises we’ve already had.

“Perhaps now the RBA Board will sit back and watch inflation for the next few months, rather than inflicting more stress and pain on homeowners.”

Banks could raise rates despite the pause

Marshall added that many of the low borrowing rates and competitive offers from lenders have dried up, with some potentially hiking their own borrowing rates regardless of what the RBA decides.

“We have already seen a lot of the heavily discounted rates that have been available from lenders over the last year or so disappear, along with many of the cashback offers. This indicates that lenders are tightening their belts, and they will probably look to increase rates further even without the RBA lifting the cash rate again.

“Fixed rates have jumped much higher over the last couple of months – in June alone we saw more than half the lenders in the Mozo database increase rates, particularly for 1 to 3 year terms with many lenders lifting 1 year rates by more than other terms.

“These rate rises will keep the pressure on borrowers who might be looking for their first loan or considering refinancing to a new lender, as they will have to demonstrate that they can afford higher repayments than they would have otherwise.”

More rate hikes may come

PropTrack Senior Economist, Paul Ryan noted “The RBA held the cash rate target steady today. Nevertheless, the RBA signalled that more tightening may be needed to rein in inflation, with many expecting another hike – the 13th since May 2022 – to come as early as next month.”

“The RBA judged that recent data on the labour market and inflation was in line with its expectations, and opted to wait for additional data on inflationary pressures and productivity growth, in particular.

“More tightening is expected to be needed to bring inflation back to the RBA’s target, but rates are close to their peak, which is good news for the housing market.

“So far, the housing market has shown remarkable resilience to sharply higher interest rates. Despite rates now at levels not seen since 2012, home prices increased further in June, and are up 2.3% over 2023 so far. Offsetting higher mortgage rates, strong buyer demand has been focused on a slower flow of new property listings and led to price increases.

“Forward indicators point to further home price growth in the months ahead. But continued higher interest rates remain a risk for the housing market. At some point, eroded borrowing capacities and weaker economic conditions brought about by higher interest rates may lead to price falls, as seen in 2022.”

Conisbee also noted that more rate hikes could be on the cards.

“Despite [slowing inflation and a slowing economy, the] rate rises may not be over, with markets continuing to price in more increases for the year. While this is the case, prices across a range of assets including housing, shares and even bitcoin continue to rise.

“Given this is counter-intuitive in a situation where the cost of finance is so much more expensive and the potential for a recession is increasing, what is driving it?”

FOMO fuelling the market

Buyers are back in force, with Conisbee noting the number of people actively bidding at auction has risen from an average of 2.2 bidders per auction in November 2022, to 2.9 bidders in June 2023; housing loan commitments also increase by five per cent in May.

The reason buyers are back? Conisbee posits the fear of missing out.

“The best time to buy is the low of the market. Last year, we saw a lot of buyers watching and waiting for the housing market to crash, or for prices to come down substantially. The idea being that they could swoop in and grab a bargain.

“This belief of a significant fall in asset values didn’t just happen in the housing market. A similar trend played out in share markets and for more volatile asset classes such as cryptocurrencies.

“Instead of a crash, we have seen some decent performance this year and it is likely that this is going to continue to drive more buyers into the market. Capital city house prices have risen by 5.1% since the start of the year, Australian shares rose 9.4% over the year and Bitcoin has risen 80% since January.

“What could change the direction of asset prices movements? Right now, house price growth appears firmly entrenched. The increase over the quarter is now at its highest level since the end of 2021. More rate rises, a rise in distressed listings and even recession may not be enough to lead to a decline in prices.”

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