RBA moves for reprieve with decision to halt

The Reserve Bank of Australia (RBA) has fulfilled half of the opinions voiced by economy experts and market commentators after deciding to pause its rate hiking cycle for the month of July, providing mortgage holders and Australians in general some reprieve as home loan stress and cost of living pressures continue to bite.

The announcement made by RBA Governor, Philip Lowe, leaves the official cash rate at 4.10 per cent, despite several economists forecasting a further 25 basis point rise to take the rate up to 4.35 per cent which would have amounted to an increase of 425 basis points in the past 14 months.

“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,” Lowe said in the announcement.

“In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month. This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook.”

The announcement to pause comes as inflation in Australia passed its peak and has showed signs of slowing in previous months’ Consumer Price Index (CPI) indicators, with May showing 5.6 per cent. The Board reiterated its priority to ensure inflation lowers to the two to three per cent target range “within a reasonable timeframe” in order to avoid “costly” solutions if normalcy included high inflation expectations.

Lowe said the Board is aware of inflation’s impact on both price and wage increases, given the nation’s economic slowdown and persistent low unemployment rate.

“Growth in the Australian economy has slowed and conditions in the labour market have eased, although they remain very tight,” the announcement said.

“Firms report that labour shortages have lessened, yet job vacancies and advertisements are still at very high levels. Labour force participation is at a record high and the unemployment rate remains close to a 50-year low. Wages growth has picked up in response to the tight labour market and high inflation. At the aggregate level, wages growth is still consistent with the inflation target, provided that productivity growth picks up.”

However, while the announcement also flagged the potential for further policy tightening in the next few months to return inflation to its designated target, the Board maintained the decision will “depend upon how the economy and inflation evolve”.

“The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the economic outlook and associated risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the forecasts for inflation and the labour market.”