KEY POINTS
- The RBA voted to keep the cash rate unchanged at 4.10 per cent.
- Treasurer Jim Chalmers said Australians would be breathing a sigh of relief.
- It follows the relative easing of inflation data.
Borrowers have been given another reprieve after the Reserve Bank of Australia (RBA) left the nation's official interest rate on hold for a second straight month, but the central bank's governor has left the door open to further rate hikes.
The RBA board decided on Tuesday to leave the cash rate target at 4.10 per cent amid — although RBA governor Philip Lowe warned it is "still too high".
"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," Lowe said in a statement on Tuesday.
"The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that."
The , but it's still well above the RBA's 2-3 per cent target range.
Lowe said in his statement on Tuesday that inflation is expected to fall to around 3.25 per cent by the end of 2024 and back within the RBA's target in late 2025.
Here's how Australia's official interest rate has changed. Source: SBS News
What does the RBA's decision mean for Australians?
Treasurer Jim Chalmers said Australians would be "breathing a sigh of relief" at the news, but many would remain "under the pump".
"This is a welcome reprieve for Australians who are already doing it tough," he said.
"We know inflation in our economy is coming off, but it is still too high."
For mortgage holders, previous interest rate rises have been pushing up their monthly repayments.
RateCity analysis has the average borrower with a $500,000 mortgage stumping up well over $1,100 extra towards their loan, compared with what they were paying before interest rates started going up.
AMP senior economist Diana Mousina told SBS News that keeping interest rates on hold lowers the chance of a near-term recession in Australia.
What could cause the RBA to raise rates again?
Lowe said in his statement the RBA will be watching monthly and quarterly inflation data, employment figures and trends in household spending.
He said inflation is largely on track to return to the 2–3 per cent target range over the forecast horizon.
But he said there remain "major uncertainties" such as the lag between rate rises and inflation actually going down, as well as household spending.
"The outlook for household consumption is also an ongoing source of uncertainty. Many households are experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income," he said.
The central bank will also be watching for "developments in the global economy such as if there's any big specific shocks that happen globally", Mousina said.
PropTrack senior economist Eleanor Creagh said the full impact of recent rate rises is yet to be felt, and we're likely to continue to see inflation moving lower.
But she highlighted that the board is ready to do more should it be necessary.
“The substantial tightening already pushed through is weighing on economic activity, consumer spending is slowing, while business surveys indicate weaker conditions are expected in the coming months as economic activity slows.
“However, although progress is being made inflation remains elevated. Services inflation remains persistent and both headline and trimmed mean inflation are still well above target."
Independent economist Chris Richardson warned unemployment will rise from a 50-year low, though interest rates had likely peaked.
But he said rates were unlikely drag inflation back to its target range of 2 to 3 per cent for at least a year.
“It's been fast. It's been furious, but it's probably also now done and dusted,” he told SBS News.
“[But] the peaking rates [are] not the same thing as peaking pain. The pain will get worse for many people.”
Richardson said that included almost a million home loans taken out as emergency, low fixed-interest loans during the COVID-19 pandemic.
“They will roll over to something much more expensive.”
How likely is another interest rate rise?
Forecasters are split on whether interest rates need to go up again, but Mousina said the fact the RBA has been hawkish in the past combined with its latest statement means "we're not out of the woods yet".
"Our forecasts suggests that inflation will come down more in the coming months.
"So I think that there will be less reason to hike in coming months.
"If they don't want to do it now then what would be the reason to do it in a month or two, if the data plays out, as we expect, which should show falling inflation?" she said.
Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said it was increasingly likely the RBA had reached the top of its rate hiking cycle.
"With economic momentum waning, it seems unlikely the RBA will be presented with more compelling arguments to raise rates than they would have heard at today's meeting," he said.
The economist picked up a slight change in the governor's language around inflation returning to the target range by "late" rather than "mid" 2025.
"This may have provided a justification for a tightening in policy to provide further insurance against rising inflation expectations," Langcake said.
"But ultimately, the RBA seem comfortable letting inflation run above their target for a little longer."
- With the Australian Associated Press.
