Good news for Australians: RBA Pauses Rates For Second Straight Month
The Reserve Bank of Australia (RBA) announced on Tuesday that it has chosen to maintain its cash rate at 4.1 per cent for the second consecutive month, providing some much financial needed breathing room for Australian households.
The main reasoning behind this decision by Dr Philip Lowe was that, as he stated, the central bank needed more time to assess the impact of the 400 basis points of interest rate increases implemented since May 2022.
Changes in the cash rate typically take 12 to 18 months to transmit to households and businesses, and the surge in fixed-rate lending during the pandemic may result in a slower transmission in this cycle.
The RBA's decision to hold rates also aligns with many of its international peers, including America and the EU, who are also likely approaching the end of their tightening cycles. approaching the end of their respective tightening cycles.
This decision has led to varied opinions among economists. While many argue that low unemployment and persistent high inflation might compel the incoming governor, Michele Bullock, to raise rates again, others believe that the unprecedentedly aggressive interest rate rises of old are soon to be over.
Namely UBS chief economist George Tharenou, who originally expected the RBA to increase the cash rate to 4.35 per cent, said he now thought the central bank was done.
“We think risks are still tilted towards more tightening, given unemployment is close to a historic low, and upside [risk] to house prices from an extended hold, which could support spending,” Mr Tharenou said.
“But today’s decision makes us unconvinced the RBA will act on stronger data.”
Markets have adjusted their expectations for further rate rises, with just a 24 per cent chance of an increase at Dr. Lowe's final meeting in September and a 35 per cent chance at Ms. Bullock's first meeting in October.
Undoubtedly interest rate expectations were also improved by last week’s softer-than-expected inflation figures indicating a decline in annual inflation to 6 per cent in the June quarter from 7 per cent in the March quarter.
Yesterday, the ASX responded very positively climbing 0.5% to a near yearly high, rallying on the prospect that the rapid interest rate tightening cycle might well and truly be over.
Speaking in Parliament on Tuesday, Dr Chalmers said the decision to keep rates on hold was a “welcome reprieve” for borrowers.
“There will be a sigh of relief around Australia, but people are still under the pump,” Dr Chalmers said.
The Aussie dollar dropped on the news seeing gold in AUD firm nicely.