Australian borrowers were spared a rate hike for the first time in a year, but the relief is likely to be short-lived as inflation is still too high.
The Reserve Bank of Australia has kept the cash rate at an 11-year high of 3.6 percent, marking the first pause since April 2022 – but Governor Philip Lowe has indicated another rate hike is likely.
This month’s pause was followed by 10 straight monthly rate hikes, the harshest monetary policy tightening since the RBA target cash rate era began in 1990.
dr Lowe acknowledged that the full impact of previous rate hikes has yet to be felt, noting that the RBA needs to study the impact of an economic slowdown.
“The Board recognizes that monetary policy is operating with a lag and that the full impact of this significant rate hike is yet to be felt,” he said.
‘The Board has made the decision to hold interest rates constant this month to have additional time to assess the impact of the previous rate hike and the economic outlook.’
Australians have been spared a rate hike for the first time in a year, but the relief is likely to be short-lived
Inflation has eased from last year’s 32-year high of 7.8 percent, with the monthly reading for February showing CPI at 6.8 percent.
But that Australian Bureau of Statistics metric is still well above the RBA’s 2 to 3 percent target.
The Board believes that further monetary tightening may well be needed to ensure inflation returns to target.
dr Lowe hinted at another rate hike, with inflation not expected to return to target until mid-2025.
“The Board understands that further monetary tightening may well be needed to ensure inflation returns to target,” he said.
“The central forecast assumes that inflation this year and next will fall to around 3 percent in mid-2025.”
The RBA noted that inflation in Australia was moderating on easing global supply pressures and a slowdown in local demand.
“Commodity price inflation is likely to moderate in the coming months due to global developments and weaker demand in Australia,” said Dr. Lion.
RBA Governor Philip Lowe acknowledged that the full impact of previous rate hikes has yet to be felt, noting that the impact of any economic slowdown needs to be studied. But he also hinted at another rate hike (he’s pictured at the Boonie Doon Golf Club in Sydney).
The Commonwealth Bank and Westpac both correctly predicted a pause in April, but they expect another 0.25 percentage point hike in May, taking the benchmark rate to 3.85 percent.
Another rate hike means that a borrower with an average $600,000 mortgage would increase monthly payments by $95 from $3,377 to $3,472.
Annual repayments on a typical loan have already increased by $12,852 since rate hikes began in May, ending an era of record-low cash rates of 0.1 percent.
In addition, Australia’s 880,000 fixed rate mortgage borrowers are facing a sharp rise as their ultra-low 2% fixed rate mortgage loans expire in the coming months, forcing many to ‘flip’ variable rates in excess of 7%. Percent.
Tim Lawless, research director at real estate data group CoreLogic, said the end of rate hikes is likely to trigger a real estate market recovery as consumer sentiment improves.
“An increased level of certainty around the rate hike cycle should lead to an improvement in consumer sentiment, which has been stuck at levels seen during the worst of the global financial crisis and the early stages of the pandemic,” he said.
‘We know that consumer sentiment and housing market activity are closely related, so any upside in spirits could result in more buyers and sellers returning to the market, although we would need to see a significant rebound in sentiment before we get to average levels to return.’
The Australian Securities Exchange 30-day interbank cash rate futures market had expected the RBA to halt rate hikes ahead of Tuesday’s announcement.
The Reserve Bank of Australia kept interest rates at an 11-year high of 3.6 percent, marking the first pause since April 2022 (stock image shown).
The Australian Securities Exchange 30-day interbank cash rate futures market had expected the RBA to halt rate hikes ahead of Tuesday’s announcement
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