Key Points
- The Reserve Bank of Australia has kept interest rates on hold at 4.1 per cent for the third consecutive month.
- But the central bank has also said "inflation is too high and will remain so for some time yet".
- Tuesday marked the bank's last board meeting with Philip Lowe as governor.
The Reserve Bank of Australia (RBA) has decided to keep interest rates on hold at 4.1 per cent for the third consecutive month, offering moderate relief to borrowers.
However, the bank has also said "inflation is too high and will remain so for some time yet", despite having passed its peak, leaving the possibility of another rate rise in the coming months open.
Experts had , following a relative softening in inflation data and slight increases in unemployment.
The extended pause follows the bank's campaign to lower inflation by raising rates by four percentage points since May 2022, which has put pressure on Australians' wallets.
Source: SBS News
Judo Bank economist Warren Hogan said inflation was moderating in line with the RBA's forecasts, giving the board breathing space to sit back and continue monitoring in September.
But he told AAP it was still "way too early to be popping champagne corks", with the relative heat of the economy his key concern.
He said robust retail sales numbers and strong business investment were indicators of a resilient economy.
Consumer confidence has been at its highest point since April but is well below long-term averages.
Effie Zahos, a money expert at financial comparison site Canstar, said the rate pause will give borrowers another opportunity to reflect on whether or not they can find a better deal on interest rates.
"The latest lending data from the Australian Bureau of Statistics highlights that borrowers are still chasing better interest rates," she said.
"As a number of lenders continue to increase variable rates, some borrowers may be able to lock in a quick saving by fixing their home loan rate."
A record $21.5 billion in loans were switched to a new lender in July, representing an increase of 5.4 per cent from June and 21.8 per cent higher than the same period last year.
IG Market analyst Tony Sycamore told SBS News recent data has fallen the way the RBA would have hoped.
"While RBA Governor Lowe may have been slow to start hiking rates, he departs with his head held high, knowing that much of the heavy lifting required to bring inflation under control is in place ahead of Michele Bullock's tenure."
According to the RBA, the outlook for household consumption remains uncertain, with many households experiencing a "painful squeeze" on their finances, while some are benefiting from rising housing prices and higher interest on savings.
Globally, there is increased uncertainty about the outlook for the Chinese economy because of ongoing stresses in the property market.
AMP Capital senior economist Diana Mousina said it's hard to predict where the RBA will go under new leadership
"Michele Bullock is an insider from the RBA, so that will provide the central bank a lot of continuity, she may decide to shift things around entirely.
"But will that have a big impact on interest rates? I'm not sure that it will, it might be too early to tell."
The structure of the board next year will be changed, based on the recommendations for the RBA review, so that could lead to some potential changes in how decisions are arrived upon by the board, she said.
How long will the RBA keep interest rates on hold?
The RBA has indicated inflation won't reach its target rate of 2-3 per cent until late 2025, .
"I personally think where we're probably one rate hike short of the level that they could be comfortable sitting on right through next year," Hogan said.
Sycamore agreed with there being a chance of another rate rise this year, as rent inflation increased significantly this year according to the ABS, and crude oil prices have also moved higher.
However, economists at AMP Capital say the RBA may be done with raising rates and could start cutting them in 2024.
"The bar for another rate rise is pretty high and there would have to be significant indicators that inflation will definitely stick around at a level too high for too long," Mousina said.
"We think that we will see rate cuts next year because we see the current level of interest rates being too restrictive on the economy, especially for those households that have mortgage and a lower inflation outlook next year should allow the bank to cut rates again."
- With additional reporting by AAP.
