Homeowners exhale: RBA leaves cash rate on hold

Investing

The RBA has chosen to leave the official cash rate on hold for July at 4.10%, saying its strategy to increase rates 12 times in 13 months is working.
Image: Getty
Key Takeaways
  • The RBA has maintained the cash rate at 4.10% for July.
  • The cash rate had risen from 0.1% in May 2022 to 4.1% in June 2023.
  • Inflation is slowing, but it will take time to fall to the RBA’s target range of 2-3%
  • Industry commentators predict that RBA Governor Philip Lowe’s tenure is limited following the official review of the bank and its recommendations for a board shake-up.

Australian homeowners have breathed a collective sigh of relief at the Reserve Bank of Australia’s decision this afternoon to maintain the official cash rate at 4.1%.

Mortgage holders have been slammed over the past 15 months, with 12 increases taking the cash rate from 0.1% in early 2022 to 4.1% in June. In layman’s terms, the increases have meant that repayments on a $500,000 home loan have risen from around $2,225 a month in May 2022 to $3,623 – an almost $1,300 monthly increase.

RBA Governor Philip Lowe said in a statement this afternoon that 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 said.

Reserve Bank Governor Philip Lowe Appears Before House Economics Committee
Reserve Bank Governor Philip Lowe has come under scrutiny for the board’s decision to increase lifts, despite changing economic conditions | Source: Getty Images
What is behind the decision?

The RBA faces a balancing act in its goal to reduce inflation without pushing the economy into recession.

Three of the four major banks – Westpac, NAB and ANZ – got today’s decision wrong, predicting that the RBA will raise rates in July and again in August, with the Commonwealth Bank the only big four bank predicting just one more rate rise this year.

RBA Governor Philip Lowe has been widely criticized for the decision to rapidly increase the official cash rate, given his comments in 2021 that rates were unlikely to increase until 2024.

Last week, the Australian Bureau of Statistics released its monthly Consumer Price Index (CPI) data for May. Its data revealed that inflation was pinned at 5.6% year-on-year, down from 6.8% in April. But Lowe has warned inflation is still well above the board’s target range of 2.3%.

“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,” Lowe said today.

Just last month Lowe commented that while the board acknowledged that times were tough for homeowners, allowing inflation to get out of control would cause greater pain later on.

“The Board is still seeking to keep the economy on an even keel as inflation returns to the 2–3% target range, but the path to achieving a soft landing remains a narrow one,” Lowe said. 


More from Forbes Australia