Reserve Bank persists with status quo on interest rates

Industry experts say decision to hold reflects RBA's cautious approach

Reserve Bank persists with status quo on interest rates

The Reserve Bank of Australia board’s decision to keep the official cash rate on hold for the sixth consecutive meeting reflects its ongoing cautious and stable approach to fighting inflation, say banking and mortgage industry experts.

There were no surprises when the RBA opted to keep the cash rate at 4.35% at its monetary policy decision meeting on Tuesday, June 18. The interest rate paid on exchange settlement balances unchanged at 4.25%.

The Reserve Bank hasn’t changed the cash rate since November 2023 when it lifted the OCR 25 basis points from 4.10% to 4.35%

A survey of 38 finance industry experts and economists conducted by Finder revealed that all respondents had predicted the RBA would keep the cash rate at 4.35%.

The RBA board, led by governor Michele Bullock, said in a statement on its website that  inflation had fallen substantially since its peak in 2022, as higher interest rates had been working to bring aggregate demand and supply closer towards balance.

“But the pace of decline has slowed in the most recent data, with inflation still some way above the midpoint of the 2% to 3% target range,” the RBA board said.

“Inflation is easing but has been doing so more slowly than previously expected and it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range. While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation.”

Australia’s inflation rate for the 12 months to April sits at 3.6%, with the most significant rises being  housing (+4.9%), food and non-alcoholic beverages (+3.8%), alcohol and tobacco (+6.5%) and transport (+4.2%).

Unemployment, which is also a factor that the RBA considers when deciding the OCR, sits at 4%, according to the latest ABS figures for May.

Experts react to RBA June decision

BOQ chief economist Peter Munckton (pictured above left) said financial markets had fully expected no move, as did all economists, so there was no surprise in today’s decision.

“It was the right call to keep rates unchanged,” said Munckton. “While economic growth is sub-trend, inflation remains too high.”

“Today’s decision is unlikely to significantly change the current dynamics in the housing market. Some borrowers are doing it tough given the level of interest rates and the general high cost of living.

“Other borrowers will shortly be moving off a low fixed rate to a much higher variable rate.”

Munckton said the recent rise in interest from investors was likely to be maintained given that the rise in house prices and rents was driven by strong population growth at a time of low new supply.

“With both the current inflation and unemployment rates at around 4%, if there is to be a move in the next couple of meetings, it must be up.

Despite this, Munckton said he believed the next move would eventually be down, as sub-trend economic growth led to rising unemployment and lower inflation.

“That move, though, looks increasingly unlikely to happen until 2025.”

Mark Hewitt (pictured above centre), general manager industry and partnerships at AFG, said the Reserve Bank’s reflected its cautious approach and stated intention of “watching the data”.

“Gross domestic product (GDP) rose by only 0.1% in the March quarter and a seasonally adjusted 1.1% for the 12 months,” Hewitt said.

“This shows the economy is slowing in response to rate rises and although inflationary pressures continue to weigh on the Consumer Price Index (CPI), currently sitting at 3.6%, the RBA has opted to maintain the status quo.”

Hewitt said the RBA’s stability in monetary policy was aimed at supporting ongoing economic recovery efforts and providing certainty for households.

“Everyone will be paying very close attention to the decision and will be looking for clues as to where interest rates might be headed next,” he said.

“The RBA board has been very careful to leave their options open on the future direction, saying they are not ruling anything in or out. I suspect that caution will continue.”

Hewitt said with most economists broadly predicting cuts to the cash rate wouldn’t be seen until later in the year and into early next year, brokers and their customers would “continue to feel pressure.”

“The importance of staying informed about economic developments and keeping abreast of market trends and exploring opportunities for financial optimisation, is why borrowers have a broker onside. This has never been more important.”

P&N Bank and BCU Bank general manager broker Kaine Adamson (pictured above right) also said the RBA’s decision to hold reflected a cautious approach, taking into account the current economic landscape.

“This move suggests that the RBA is waiting for more data regarding the pace of disinflation before making any further changes,” Adamson said.

“For brokers and their customers, this decision provides a period of stability which allows them to plan and manage their finances without the immediate pressure of rising interest rates.”

Adamson said it was a great opportunity for brokers to reassure their clients about steady mortgage repayments and financial predictability.

“Looking ahead, I believe the RBA will closely watch inflation and employment trends. If everything remains stable, we might see the rates hold for a while longer. However, if the economy shows signs of heating up or cooling down significantly the RBA will be ready to adjust accordingly.”

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