Mortgage relief for millions of Australians as Reserve Bank pauses rate hikes after 10 straight hikes – but here’s why pause in rate hikes won’t last for homeowners
- The Reserve Bank’s cash interest rate remained at 3.6 percent
- First monthly rates pause since April 2022
Australian borrowers have been spared a rate hike for the first time in a year, but the relief is likely to be short-lived as inflation is still too high.
The Reserve Bank of Australia has left cash rates unchanged at an 11-year high of 3.6 per cent, marking the first break since April 2022 – but Governor Philip Lowe has hinted another rate hike was likely.
This month’s pause followed 10 straight monthly rate hikes, the most severe pace of monetary tightening since the beginning of the RBA target rate era in 1990.
Dr. Lowe acknowledged that the full effects of the previous rate hikes had not yet been felt, noting that the RBA needed to look at the effects of an economic slowdown.
“The board recognizes that monetary policy is lagging and that the full effect of this substantial rate hike has not yet been felt,” he said.
“The board has made the decision to keep interest rates stable this month in order to have more time to assess the impact of the interest rate hike to date and the economic outlook.”
Australians have been spared a rate hike for the first time in a year, but the relief is likely to be short-lived
Inflation has moderated from a 32-year high of 7.8 percent last year, with the monthly benchmark for February showing a consumer price index of 6.8 percent.
But this measure, from the Australian Bureau of Statistics, is still well above the RBA’s target of 2 to 3 percent.
The Governing Council expects that some further monetary policy tightening may be necessary to ensure inflation returns to target.
Dr. Lowe hinted at another rate hike, with inflation not expected to return to target until mid-2025.
“The board expects that some further monetary policy tightening may be necessary to ensure inflation returns to target,” he said.
“The central forecast is that inflation will fall to about 3 percent by mid-2025 this year and next.”
RBA Governor Philip Lowe acknowledged that the full effects of the earlier rate hikes had not yet been felt, noting that the effects of an economic slowdown should be looked at. But he also hinted at another rate hike (he’s pictured at Sydney’s Boonie Doon Golf Club)
The RBA noted that inflation in Australia was moderating due to easing global supply pressures and a slowdown in local demand.
“Goods price inflation is expected to moderate in the coming months due to global developments and weaker demand in Australia,” said Dr Lowe.
The Commonwealth Bank and Westpac both correctly predicted a pause in April, but they expect another rate hike of 0.25 percentage point in May, bringing the cash rate to 3.85 percent.
Another rate increase means that a borrower with an average mortgage of $600,000 would see their monthly repayments increase by $95 to $3,472, up from $3,377.
Annual payments on a typical loan have already increased by $12,852 since rate hikes began in May, ending the era of the record-low cash interest rate of 0.1 percent.
In addition, Australia’s 880,000 borrowers with fixed-rate mortgages face sharp increases as their ultra-low two per cent fixed-rate loan terms expire in the coming months, forcing many to reverse floating-rate rates of more than seven per cent. per cent.
The Reserve Bank of Australia has left cash rates unchanged at an 11-year high of 3.6 percent, marking the first break since April 2022 (photo is a stock photo)