RBA leaves interest rates on hold after ten consecutive rate rises!

The Reserve Bank has given mortgage borrowers a break, finally!

After ten consecutive rate rises, the RBA has decided to wait and see how the economic data plays out amid early signs that the increase in rates so far is starting to weigh on consumer spending and lower inflation.

We have had ten rate rises since May 2022. However, the RBA governor Philip Lowe was offering no assurances that interest rates would not rise again. This means we may see an increase again.

"The board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target," he said in his post-meeting statement.

"The decision to hold interest rates steady this month gives the board more time to assess the state of the economy and the outlook in an environment of considerable uncertainty."

Today's decision leaves the RBA's cash rate target at 3.6 per cent, which is still the highest since May 2012. Official interest rates have risen 3.5 percentage points from the pandemic emergency low of 0.1 per cent.

We all know how rough it has been and how it has greatly impacted every homeowner’s monthly cash flow. The last ten rate increases had already added almost a thousand dollars per month to repayments on a $500,000 principal and interest loan with 25 years remaining.

Mr Lowe said the board had considered the delay with which interest rates affect the economy, given that many borrowers have not yet seen their minimum repayments, including the February and March rate hikes.

"There is further evidence that the combination of higher interest rates, cost-of-living pressures and a decline in housing prices is leading to a substantial slowing in household spending," the RBA governor observed.

"While some households have substantial savings buffers, others are experiencing a painful squeeze on their finances."

Indeed Asia-Pacific economist Callam Pickering, who used to work at the Reserve Bank, said he expects the Australian economy to slow considerably over the year's second half, making further rate rises unnecessary.

"This is centred on the belief that household conditions will deteriorate due to the combination of much higher mortgage repayments, falling asset prices and the unprecedented decline in inflation-adjusted wages.

"This is a recipe for an economic slowdown if ever I've seen one.

"[The RBA board] are likely to take the next month or two, at the very least, to assess how those earlier rate hikes have impacted the economy.

"We think the impact will be large enough for this temporary pause to become more permanent."

At AMB, we recommend you continue to review your mortgage, and as a mortgage broker, we do all the hard work for you. Even if rates plateau, you could save on your existing rate.

If your mortgage has yet to be reviewed within the last year or more, chances are you are paying too much. Please get in touch with us via our website link today to get started.