The Reserve Bank has given mortgage borrowers a reprieve, at least temporarily, by leaving interest rates on hold at today’s board meeting.
After 10 consecutive rate rises, the Reserve Bank of Australian (RBA) opted to wait and see how the economic data plays out, amid early signs that the increase in rates so far is starting to weigh on consumer spending and lower inflation.
However, RBA governor Philip Lowe was offering no assurances that interest rates would not rise again.
“The board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target,” he said in his post-meeting statement.
“The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty.”
Today’s decision leaves the RBA’s cash rate target at 3.6 per cent, which is still the highest level since May 2012.
Official interest rates have risen 3.5 percentage points from the pandemic emergency low of 0.1 per cent.
RateCity said those rate increases had already added almost a thousand dollars a month to repayments on a $500,000 principal and interest loan with 25 years remaining.
Temporary pause could become ‘more permanent’
Indeed Asia-Pacific economist Callam Pickering, who used to work at the Reserve Bank, said he expected the Australian economy to slow considerably over the second half of the year making further rate rises unnecessary.
“This is centred on the belief that household conditions will deteriorate due to the combination of much higher mortgage repayments, falling asset prices and the unprecedented decline in inflation-adjusted wages.
“This is a recipe for an economic slowdown if ever I’ve seen one.
“[The RBA board] are likely to take the next month or two, at the very least, to assess how those earlier rate hikes have impacted the economy.
“We think the impact will be large enough for this temporary pause to become a more permanent one.”
Were you expecting the RBA top pause the rate hikes? Do you believe the March rate rise might have been the last for some time? Share your thoughts in the comments section below.
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I thought they would hold rates where they are for a while, but I also think there will be one or two further increases this year. Inflation is still running too high.
RBA made the statement that it needs to control inflation as long as the business increases its prices and workers demand increases to their wages. I wonder whether someone has told RBA Governor that businesses will pass on the high interest rates to their customers to survive, and the workers’ wages are way below the inflation rates because this inflation caused by supply chains and not by consumer demand. Our monetary policy as an inflation tool is not fit for purpose. A vigorous application of the current monetary tool may end up like the dog chasing its own tail.