The Reserve Bank left the policy rate unchanged at 4.1 percent for the fourth consecutive month, but did not rule out future hikes to bring inflation back to its target.
- The RBA has not increased the interest rate since June this year, when it raised it to the current rate of 4.1 per cent.
- Economists did not expect the RBA to raise rates at its meeting, but say a hike is likely before Christmas.
- Tuesday’s meeting was Michele Bullock’s first as RBA governor after taking over from Philip Lowe last month.
This is the fifth time the RBA has suspended its current rate hike cycle since May 2022, when it began raising rates to reduce high inflation, and left the money rate at its highest level since April 2012.
Tuesday’s board meeting was the first under new Gov. Michele Bullock, who took over from Philip Lowe last month.
The RBA’s decision to leave rates unchanged was in line with the expectations of financial markets and economists, despite a slight rise in inflation to 5.2 percent in August, from 4.9 percent in July.
It was the first time monthly inflation had increased since April, due to a rise in fuel prices contributing to higher transport costs, as well as rising prices for housing, food and insurance. . Core inflation, however, fell further.
In her first statement as RBA governor, Ms Bullock repeated Mr Lowe’s earlier statements that future rate rises may be needed to combat inflation.
“Raising interest rates are helping to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” Ms Bullock said.
“In light of this and the uncertainty surrounding the economic outlook, the Council has again decided to keep interest rates stable this month. This will give more time to assess the impact of the interest rate hike to date and the economic outlook.
“Further tightening of monetary policy may be necessary to ensure inflation returns to its target within a reasonable time frame, but this will continue to depend on data and evolving risk assessments.”
Ms Bullock said the RBA expected inflation to return to its target range of 2 to 3 per cent “by the end of 2025”, but noted that rising fuel prices and rents could s prove difficult.
“Current inflation indicators suggest that goods price inflation has eased further, but prices for many services continue to rise rapidly and fuel prices have risen noticeably recently. Rent inflation also remains high,” she said.
“Inflation is falling, the labor market remains strong and the economy is operating at a high level of capacity utilization, although growth has slowed.”
Economist Chris Richardson said he expected Ms Bullock to adopt a “hawkish” tone – suggesting future rate hikes are possible to curb inflation – in her first post-meeting statement in as governor.
“The more hawkish the Reserve Bank is, the less likely it is… (to have to) do something hawkish,” he told The Business.
“They want to make sure that we don’t get carried away, if you will, by the pause that has been going on for several months now.”
Mr Richardson said he hoped the RBA would not increase the policy rate at all in the coming months.
“I’m still hopeful that there won’t be any changes,” he said.
“Most economists think we’re either at the peak or maybe another rate hike, but that conversation is a little more complicated than it was because of the current rise in inflation.”
This follows internal RBA emails released under a Freedom of Information request which showed the National Debt Helpline was receiving more calls from people who had never experienced financial difficulty before – even those who were “gainfully employed” or “mortgaged with six-figure salaries.” ” living in Sydney’s wealthiest suburb.
“It’s still not enough”
Another month of stable interest rates is little comfort to thousands of borrowers already struggling with higher repayments, including Jalal Ahmed.
After emigrating from Bangladesh in 2015 with his partner and son and renting for years, the family decided to build their first home in suburban Melbourne.
They have lived there since 2018 but, after welcoming a second son two years ago, the family began looking for a bigger home for their growing family – encouraged by the former RBA governor’s now-infamous predictions, Philip Lowe, according to which interest rates would not increase until 2024.
Mr Ahmed opted for a package of houses and land to build their largest family home and posted a $30,000 bond.
“That was the hope that Philip Lowe gave us, that we had a certain window to change our requirements, our needs, but unfortunately that didn’t happen, and with that assurance, the price of the land and that of real estate have increased by almost 20 to 20 percent. 30 percent in my region,” he said.
“Now we are having trouble getting another loan to settle the land. It’s a really stressful situation for us. We put all our savings into the new plan.
“I have to colonize the land, otherwise the developer will take away my deposit money.
“I don’t know what to do. Maybe we have to lose our deposit money.”
At the same time, he is paying more on his current mortgage, with his repayments having more than doubled since the RBA began its latest rate hike cycle.
“We paid 1.9 percent at the end of 2021, beginning of 2022. But now I’m paying 6.09 percent, so my refund has more than doubled now… almost $3,000.
“Almost $2,000 more than previous payments.
“But if (the RBA) continues to hold on, it won’t cause us any more pain.”
To make ends meet, Mr. Ahmed found part-time work at a pharmacy, in addition to his full-time job as an industrial chemist, while his wife works as a daycare teacher.
After speaking to her lender, her only option is to move to paying interest only on her loan.
“It’s also stressful for us because we only pay interest and our total amount doesn’t go down much, so at the end of this period we pay more for that house.”
Already, Mr. Ahmed cuts to the essentials.
“I’m just cutting back on some of our expenses, like we’re cutting back on the kids’ activities…we’re not dining out, we’re not going on vacation, we’re just spending time with family,” he said.
“It’s the only thing we do, but it’s still not enough.
“We came here for a safer life, but the situation is moving in such a direction that we no longer feel safe here.”
Rate cuts unlikely for a year
Tuesday’s decision to leave rates unchanged was widely expected by economists: however, the risk of future rate hikes increases as the RBA faces the challenges of rising house prices, rising fuel costs and a slight increase in monthly inflation.
“This combination shows that the fight against inflation is going well, but it is not yet won and, in particular, gasoline prices are a problem,” Mr. Richardson said.
“The Saudis are turning off the taps, which is raising the price of oil and hitting oil around the world. This is, if you like, the latest challenge for the Reserve Bank.”
Eleanor Creagh, senior economist at PropTrack, said slowing momentum in the economy, coupled with higher mortgage repayments, would keep inflation subdued.
“Significant increases in mortgage servicing costs, along with cost of living pressures, have led to a slowdown in consumer spending and weighed on economic activity. Conditions are expected to soften further in the coming months ” she said.
Ms Creagh also said the RBA’s decision to extend the pause on rates would boost buyer confidence during the spring selling season, noting that national house prices have reversed the year’s price decline last “in their entirety”.
“Looking ahead, interest rates have most likely peaked and population growth is rebounding strongly,” she said.
“Along with a shortage of new housing construction, prices are expected to rise and more markets will likely reach new record highs after recovering from last year’s rapid falls.”
Although Australia is getting inflation under control, Mr Richardson said the looming stage three tax cuts, which will come into effect in mid-2024, mean that a reduction in RBA rates is unlikely in the next 12 months.
“We already know that the initial easing of family finances in Australia will benefit taxpayers rather than borrowers,” Mr Richardson said.
“In my view that means it may be a year, maybe even a little longer, before the Reserve Bank gives us a first rate cut.”
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