The Reserve Bank of Australia has held the nation’s cash rate steady for a third consecutive month, in the final decision reached under governor Philip Lowe’s six-year tenure at its helm.
The Reserve Bank of Australia has held the nation’s cash rate steady for a third consecutive month, in the final decision reached under governor Philip Lowe’s six-year tenure at its helm.
The RBA has held its target rate at 4.1 per cent, where it has sat since a 25 basis point increase took it above 4 per cent at the start of June.
The move was widely expected in the lead up to today’s announcement and follows a rise in national unemployment to 3.8 per cent in August. Inflation data has also eased slightly.
In his meeting minutes, Mr Lowe said the current cash rate was showing an impact on an economic level.
“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” he said.
“In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month.
“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”
However, Mr Lowe said while inflation had passed its peak it was still too high and was expected to continue to be some time to come, as is below-trend growth in the Austraian economy.
“High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment,” he said.
“Notwithstanding this, conditions in the labour market remain tight, although they have eased a little.
“Given that the economy and employment are forecast to grow below trend, the unemployment rate is expected to rise gradually to around 4.5 per cent late next year.”
Mr Lowe said further monetary policy may be required to ensure inflation returns to target, with the RBA board to continue to focus on global and domestic economic trends and the labour market.
RBA deputy governor Michele Bullock will take over from Mr Lowe on September 18.
The hold was widely predicted, including by PropTrack senior economist Eleanor Creagh who said subsiding momentum in inflation and consumer spending eased pressure on the RBA to continue its rate hike cycle.
“The high level of inflation, which has challenged the Australian economy and seen interest rates rise at the fastest pace in a generation, continued to moderate faster than expected in August, the third straight monthly slowdown," she said.
“The substantial tightening previously delivered is weighing on economic activity. Consumer spending is slowing, and conditions are expected to soften in the coming months as economic activity continues to slow.
“The unemployment rate rose slightly in July and the labour market is expected to ease ahead, with expectations the unemployment rate is set to edge higher.”
Ms Creagh said the decision was likely to maintain buyer and seller confidence heading into the spring selling season.
National Australia Bank home ownership executive Andy Kerr echoed this sentiment, saying a third month of steady rates would give homeowners a better idea of household budget management.
“Customers have used the last three months to catch their breath but they've also continued to make considered changes to their spending through this steadier rate environment,” he said.
“More customers are now taking the opportunity of three rate pauses to look at how they can manage their finances to contend with rising living costs, set savings goals or begin to rebuild a financial buffer.”
Deloitte Access Economics partner Stephen Smith said the decision showed the RBA was realising the "precarious position the Australian economy is in" off the back of rapid rate rises since May 2022.
Mr Smith expects data released tomorrow to show further slowing in the pace of Australian economic growth over the June quarter.
“Inflation is just one of the many complex structural issues facing the Australian economy that, as the Intergenerational Report highlighted last month, can only be solved by bold, productivity-enhancing fiscal policy and economic reforms,” he said.
