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RBA keeps June interest rates on hold: What this means for off-the-plan property

Market Insights
1 month ago
3 minutes

The Reserve Bank of Australia (RBA) has decided to hold interest rates at 4.35% for the seventh month in a row following the Board’s two-day policy meeting.

In a statement released today, the Board observes that inflation has “fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.”

However, this decline is slower than expected, with inflation still above the midpoint of the 2% to 3% target range.

The Board warns that “the economic outlook remains uncertain, and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth.”

Still, the RBA’s system has worked, as said by ANZ head of Australian economics Adam Boynton.

“It’s not that monetary policy isn’t working. It is,” said Adam.

“The economy has clearly slowed, particularly across private final demand.”

Commonwealth Bank head of Australian economics, Gareth Aird, shared this sentiment, saying, “The RBA’s highly aggressive rate hiking cycle has clearly worked to slow demand growth in the economy.”

For off-the-plan homeowners and buyers, the current cash rate of 4.35% means the average borrower with a 25-year $500,000 loan at the start of the hikes in May 2022 could soon be paying approximately $1,210 more monthly on their mortgage. This is a 52% increase since the beginning of the cash rate hikes.

In May, the Board forecasted that inflation would return to the target range of 2 to 3% in the second half of 2025 to mid-2026, assuming that the cash rate follows market expectations. Since then, the Board has observed “indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth.”

Despite these uncertainties, the RBA assures that returning inflation to target remains their priority.

“Returning inflation to target within a reasonable timeframe remains the Board’s highest priority,” the Board stated.

“The Board needs to be confident that inflation is moving sustainably towards the target range.

“To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.”

While inflation is easing, they stated it is doing so more slowly than expected and remains high.

“The Board expects that it will be some time yet before inflation is sustainably in the target range,” they wrote.

“While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.

“The Board will rely upon the data and the evolving assessment of risks.

“In doing so, it will continue to pay close attention to developments in the global economy, trends in domestic demand, 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 outcome.”

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