The Reserve Bank of Australia (RBA) has decided to maintain its benchmark cash rate target at 4.1 per cent for another month.Since May last year that rates have remained unchanged for consecutive months.
Over the past 15 months, the RBA has been steadily increasing interest rates, taking them from an historic low of 0.1 per cent. This has resulted in the steepest increase in borrowing costs on record. For those with a $750,000 mortgage, monthly repayments have risen by $1,547 since the first rate hike in May last year, according to financial comparison service Mozo.
However, inflation has slowed down more than expected, with consumer prices rising only 6 per cent over the year to June, below most economists’ forecasts. The unexpected slowdown in inflation, combined with a plunge in retail sales over June, has led the RBA to hold off on further rate hikes for now.
Inflation will fall back below 3 per cent by late 2025
RBA governor Philip Lowe stated that the recent data suggest inflation will return to the target range of 2-3 per cent over the forecast horizon, and economic growth will continue. The RBA’s current forecast indicates that inflation will fall back below 3 per cent by late 2025.
Despite the pause in rate hikes, Lowe warned that the RBA may still need to tighten monetary policy further to ensure inflation returns to the target range within a reasonable timeframe. The central bank will closely monitor global economic developments, household spending trends, and the outlook for inflation and the labor market when making future decisions on interest rates.
Economists caution that borrowers should take the RBA’s warning seriously and not assume that the hiking cycle is over. The RBA remains concerned about inflation in the service sector and the stickiness of inflation overall. There is still a risk of one more rate rise, depending on future economic data and inflation trends.
While the RBA has not ruled out further rate increases, some experts believe that the economy may be given the benefit of the doubt for a little while longer. However, the potential for one last rate increase in November remains a possibility, contingent on the resilience of consumer spending in the coming months.