RBA keeps interest rates on hold for another month

The Reserve Bank of Australia has yet again decided to keep interest rates unchanged at their board meeting today, leaving the cash rate at 4.10% for the second month in a row.

In Governor Philip Lowe’s statement following the meeting, he explained, “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 again decided to hold interest rates steady this month. This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”

After an increase of four percentage points in interest rates since May last year, this pause will give variable borrowers a much-needed breather and time to catch up on mortgage repayments.

According to RateCity, the average borrower with a $500,000 loan before the hikes began in May 2022 could soon be paying a total of $1,134 more a month. This is a 49% increase.

“Inflation in Australia is declining but is still too high at 6 per cent,” said Dr Lowe. “Goods price inflation has eased, but the prices of many services are rising briskly. Rent inflation is also elevated.

“The central forecast is for CPI (Consumer Price Index) inflation to continue to decline, to be around 3¼ per cent by the end of 2024 and to be back within the 2–3 per cent target range in late 2025.”

The Board’s priority remains to return inflation to target within a reasonable timeframe. They acknowledge that high inflation “makes life difficult for everyone” and would be very costly to reduce later should it “become entrenched in people’s expectations.”

“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,” Dr Lowe said.

“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 the data and the evolving assessment of risks.

“In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

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