Reprieve or rise? RBA hands down anticipated October cash rate decision

Australia’s central bank has handed out its October cash rate decision at its monthly board meeting.

In what was the first cash rate decision delivered since former Governor Philip Lowe’s departure, the Reserve Bank of Australia (RBA) opted to hold the official cash rate at 4.10 per cent.

Despite August’s Consumer Price Index (CPI) indicating a slight inflation increase, the Reserve Bank of Australia (RBA) heeded calls for calm by holding the cash rate at 4.10 per cent for the fourth consecutive month.

August’s CPI data found inflation rose 5.2 per cent in the preceding 12 months, driven largely by marked increases in housing and insurance and financial services, amongst other sectors. While this may be cause for concern moving forward, Michelle Marquardt, ABS head of price statistics, explained removing items with volatile pricing, such as automotive fuel, saw underlying inflation decrease from July to August.

Anneke Thompson, chief economist at CreditorWatch, explained the RBA was given confidence in its hold call by “continuing weak retail trade and consumer confidence data giving the board the clear sign that their efforts to reduce demand in the economy have worked very well.”

Similar to the sentiments aired by Ms Marquadt, Ms Thomspon noted the CPI items recording increases are “by and large not related to high consumer demand, and therefore not enough to convince the RBA to move again to cool demand further.”

News of another cash rate hold will induce sighs of relief for many Australian borrowers, who would’ve taken the latest CPI increase as a sign another 0.25 per cent rate rise was a locked-on certainty.

While for buyers with pre-approval, the RBA’s fifth cash rate hold of the year will give them “confidence to table offers and bid at auction knowing they can meet serviceability levels of their loan,” according to Matthew Tiller, LJ Hooker Group’s head of research.

Adding to this, Eleanor Creagh, senior economist at PropTrack, believes the central bank’s decision will “underpin buyer and seller confidence in the spring selling season.”

With an interest rate peak growing increasingly likely with each passing month, population growth “rebounding strongly”, and a shortage of new home builds, Ms Creagh expects prices growth to continue into summer.

“National home prices have now reversed last year’s price falls in their entirety, with September marking the ninth month of national home price growth,” she said.

“One driver of the recovery in home prices this year has been the subdued listings environment, which has seen buyers competing for fewer properties,” Ms Creagh added.

She concluded “more markets will likely reach new record levels after recouping last year’s falls.”

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