The central bank has called the official cash rate for the month of August.

The Reserve Bank of Australia (RBA) has confirmed it will hold the official cash rate at 4.10 per cent today (1 August 2023) for the second consecutive month.

This is the first time the central bank has held the cash rate steady for two consecutive months in over a year (the last time being March–April 2022) and the third time the cash rate has been paused since May 2022.

RBA governor Philip Lowe said in the post-decision statement: “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.”

“In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month.

“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook,” Mr Lowe said.

However, the outgoing RBA governor added that “some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe” depending on data and the evolving assessment of risk.

He concluded that the board will continue to pay close attention to developments in household spending, the global economy and the outlook for inflation and the labour market.

Treasurer Jim Chalmers said that Australians have been “under the pump” as a result of higher interest rates.

“People are having to make difficult decisions about their household finances,” Mr Chalmers said.

“The government’s number one priority is taking the edge off some of these cost‑of‑living pressures without adding to inflation.”

Reacting to the decision, CreditorWatch chief economist Anneke Thompson stated: “A better-than-expected inflation rate over the June quarter, as well as slowing retail sales growth points to cooling economic conditions.

“And while the unemployment rate is still at record low levels, the forward indicators of employment conditions all point to a much tighter jobs market going forward.”

PropTrack senior economist Eleanor Creagh said subsiding momentum in inflation and consumer spending have “eased the pressure off the RBA to continue lifting interest rates”.

“This allows more time to assess the economic outlook as it tries to engineer a soft landing while returning inflation to target,” Ms Creagh added.

“The high level of inflation that has challenged the Australian economy and seen interest rates rise at the fastest pace in a generation, continued to moderate in the June quarter.

“Though still high relative to history and well above the RBA’s 2–3 per cent target range, Consumer Price Index (CPI) inflation was below both market expectations and the RBA’s official forecasts and looks set to continue to moderate and move lower into the first half of 2024.”

A new survey from financial comparison site InfoChoice, the InfoChoice Real Hardship Survey, found that almost half of Australian borrowers were spending over 30 per cent of their household income on mortgage repayments.

The survey of 1,000 home owners found that 8 per cent of Gen Z borrowers (under 26) admitted to committing a crime to pay their mortgage, 28 per cent borrowed more money to meet repayments with 18 per cent borrowing from family, while 10 per cent sought out help from their lender or charity.

In addition, 26 per cent made late repayments, compared to less than 10 per cent for older generations.

Millennials recorded the most impact to family life, with 56 per cent seeking more income, 18 per cent ending up arguing with family, and 63 per cent cutting back on family activities.

For Gen X, 18 per cent said they had to pay a bill late and 13 per cent said they wouldn’t be able to afford a single mortgage repayment if they lost their job.

What was predicted?

Major bank economists were split down the middle when it came to forecasting the RBA’s decision today (1 August).

NAB and ANZ both predicted the RBA would decide on a pause this month.

However, NAB chief economist Alan Oster does expect a potential further cash rate hike in September or October to a peak of 4.35 per cent.

ANZ economist Madeline Dunk noted the sharp fall in June retail sales supported the case for the central bank to maintain the cash rate, attributing the slowdown in spending to rising mortgage payments and cost-of-living pressures.

Meanwhile, Westpac and the Commonwealth Bank of Australia (CBA) believed the RBA would move to lift the cash rate once more to a peak of 4.35 per cent.

Westpac chief economist Bill Evans stated the major bank has “consistently argued that a further increase in the cash rate should be the appropriate policy response at the August meeting”.

CBA economist Belinda Allen stated there was “enough evidence to suggest the path of least regret for the RBA is to lift the cash rate by 25 bps to 4.35 per cent in August”.

“This should provide an offset to any lingering risks in the inflation and wages outlook. We expect this to be the last rate hike of this cycle and for the RBA to be on hold until 2024,” Ms Allen said.

New governor, new dates

The August rate decision is the second-to-last cash rate decision to be announced before RBA governor Philip Lowe steps down from his position.

He is set to finish his seven-year tenure as governor on 17 September 2023.

Prime Minister Anthony Albanese and Mr Chalmers confirmed earlier this month that Michele Bullock would become the next governor of the RBA and the first female governor of the central bank.

Ms Bullock will begin her new role as governor on 18 September and run for a seven-year term.

The RBA is also set to undergo a shake-up once the new governor takes charge, including by reducing the number of meetings it has in 2024.

From next year, the board will meet eight times a year instead of 11 times. The meeting dates will be as follows:

  • 5–6 February
  • 18–19 March
  • 6–7 May
  • 17–18 June
  • 5–6 August
  • 23–24 September
  • 4–5 November
  • 9–10 December

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