KEY POINTS
- The Reserve Bank of Australia has kept rates on hold at 4.10 per cent.
- Experts had been mixed on what borrowers could expect from Tuesday's decision.
- Interest rates have been increased by 4 percentage points since May 2022.
Mortgage holders can breathe a sigh of relief after the Reserve Bank kept interest rates on hold following its July meeting.
Australia's central bank moved to the sidelines after 12 interest rate rises in the tightening cycle, leaving the official cash rate at 4.1 per cent.
The pause is the second in 14 meetings, with the central bank also leaving rates unchanged in April.
Why did the RBA decide to leave rates on hold in July?
Experts had been mixed on what borrowers could expect from Tuesday's decision, with a survey of 27 economists by Bloomberg divided ahead of the announcement.
RBA governor Philip Lowe said the higher interest rates were working to create 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," he said in his monthly statement.
"This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook."
Source: SBS News
The RBA's target range for inflation is between 2 and 3 per cent.
After this pause, will the RBA hike rates again?
Three of the big four banks — Westpac, NAB, and ANZ — predict interest rates will peak at 4.60 per cent in August.
Westpac forecasts they will fall to "below 3 per cent" by the end of 2025. NAB expects rates will drop to 3.10 per cent, and ANZ 4.10 per cent later next year.
The Commonwealth Bank predicts an August peak of 4.35 per cent, with rates dropping to 3.35 per cent by November, 2024.
Mr Lowe said on Tuesday that while inflation had passed its peak, it was still too high and would remain so for "some time yet", pointing to the risk of another rate rise.
"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," he said.
"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."
Governor of the Reserve Bank of Australia (RBA) Phillip Lowe speaks to the media during a press conference in Sydney, Tuesday, April 21, 2020. (AAP Image/Joel Carrett) NO ARCHIVING Source: AAP / Joel Carrett
“For now we have to anticipate at least two more cash rate rises this year and can’t expect the cash rate to fall until 2025." he said.
A borrower on a $500,000 loan is already paying an extra $1,217 in monthly repayments taking them to $3,320 per month, according to Canstar.
That's an extra $14,604 per year — or 58 per cent — more than April last year.
Sally Tindall, the research director at financial comparison site RateCity, said the pause would be welcome relief for borrowers, but at least one rate hike still looms.
"The last thing they should assume is that we’ve seen the back of the hikes," she said.
"The RBA has handed households a much-needed breather to catch up on the 12 rate rises the Board has already fired off – if you’ve got a mortgage, use this time wisely,” she added, advising mortgage holders to bank the savings back in their mortgages.
“The reality is, the vast majority of variable borrowers have only started paying for their 10th hike. Their monthly repayments are likely to rise two more times, even if the cash rate doesn’t move a muscle, which, in itself, is an unlikely scenario."
- With AAP.
