RBA leaves interest rates unchanged at 4.10%

At their board meeting today, the Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 4.10%.

This decision comes after an increase of 4 percentage points since May 2022, resulting in a cash rate target not seen in over a decade.

In a statement following the pause, RBA Governor Philip Lowe stated, “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.”

The latest report from the Australian Bureau of Statistics (ABS) stated that Australia’s monthly Consumer Price Index (CPI) has fallen to an annual rate of 5.6% for May 2023, down from 6.8% in the previous month.

This could indicate that prior interest rate rises are having their intended effect on inflation.

“Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline,” Dr Lowe said. “But inflation is still too high and will remain so for some time yet. High inflation makes life difficult for everyone and damages the functioning of the economy.

“The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending. While housing prices are rising again and some households have substantial savings buffers, others are experiencing a painful squeeze on their finances.”

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.

“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,” explained Dr Lowe. “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.

“In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the forecasts 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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