By Tanya Faulkner
This month, mortgage holders will be quietly celebrating as the RBA cash rate is revealed to the public.
The Reserve Bank of Australia (RBA) has held the cash rate for a third consecutive month, which also marks Phillip Lowe’s last move as governor of the Central Bank.
The cash rate will remain on hold at 4.1 per cent, the highest it has been since mid 2012.
Experts say the decision was widely expected, in particular by the big four banks – NAB, CBA, ANZ and Westpac.
Following RBA custom, Lowe left open the possibility of further rate increases if needed.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend on the data and the evolving assessment of risks,” he said at the Tuesday board meeting.
Despite goods price inflation easing in recent weeks, the prices of several services continue to rise briskly, and rent inflation is also elevated.
Compare the Market’s economic director, David Koch, said although the relief is welcome by many Australians, overleveraged borrowers may suffer if these high rates linger.
“While we may have reached a peak, we’re a far cry away from the ultra-low rates Lowe had forecast until 2024.
“It’s unlikely we’ll ever get back to the record low rates we had during the pandemic, those days are probably gone.
“Unfortunately it means a lot of borrowers, particularly young people, will struggle to make their repayments,” he said.
The central bank said tightening on the monetary policy, and the cash rate increases that started in May 2022, have played their part in helping reduce the headline inflation rate from a December peak annual rate of 8.4 per cent to 4.9 per cent by July 2023.
Mr Koch said there are positive signs that action on rates have been effective in curbing inflation.
“We saw CPI fall to 4.9 per cent in July, down from 5.4 per cent in June.
“In such tight conditions, people are hiding their wallets and reining in spending wherever they can.
“We are finally starting to see that behaviour is having an effect on overall prices,” he said.
Despite these effects, Australia’s inflation rate remains higher than similarly rich nations, and far off the RBA’s preferred target band of 2-3 percent that it expects won’t be reached until 2025.
Australians with a $750,000 mortgage sitting on a variable rate could already be paying $1,814 more each month than they were at the start of May 2022.
