Why did the Reserve Bank of Australia keep interest rates on hold?

The Reserve Bank of Australia have decided to keep the cash rate at 4.35 per cent, which will be a major relief for borrowers across Australia.

As many predicted after the inflation numbers were released, the RBA decided that inflation was at a level that was considered manageable and therefore it was not worth potentially slowing down the economy.

The Quarter 2 inflation figures from the ABS suggested that whilst inflation was still not at the 2-3 per cent target the RBA are after, it had not risen as high as originally expected.

In the statement on their decision, the RBA said: “Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.”

The statement also raised similar concerns to previous decisions about inflation not slowing enough to justify a rate cut

The RBA also warned that “returning inflation to target within a reasonable timeframe remains the Board’s highest priority”, and subsequently stated that the RBA will not rule any decisions out until inflation is under control.

After the last cash rate meeting, RBA Governor Michelle Bullock strongly warned that inflation needed to be kept in check to keep interest rates from increasing.

When the monthly CPI numbers were released at the end of June, there were a lot of expectations from economists that we would be seeing a rate rise in August.

However, with unemployment numbers staying steady at 4 per cent and the economy slowing with market uncertainty, it seems a prudent call to not increase the cash rate.

Borrowers will rejoice

This reprieve from the RBA will be gladly accepted by homeowners, especially after the negative predictions following the previous monthly CPI numbers.

With nearly every other element of household expenses rising lately, mortgage repayments staying steady will ease borrowers nerves.

This leads to the next question from borrowers, when will the rates be cut?

A lot of economists are remaining optimistic that we will start to see a rate cut from November 2024, with some predicting it will be a 0.5 percent cut in interest rates.

The four major banks have provided their predictions as to when we will see a drop in interest rates:

• ANZ: February 2025
• Commonwealth Bank: November 2024
• NAB: June 2025
• Westpac: December 2024

Unfortunately, as we have seen, it is so difficult to predict what is going to happen not only with interest rates, but with the economy as a whole, that it makes forecasting that far into the future so difficult.

At this stage, economists seem to be in agreement that the cash rate will remain at 4.35 per cent for several months.

Is now the time to buy a property?

If you are ready and able to buy a property, the only thing that has changed with this rates decision is that any potential repayments will remain at the same amount as they would have previously.

Research Director at CoreLogic Asia Pacific, Tim Lawless, believes the hold on rates is positive for borrowers, but it may not be enough to see consumer sentiment rise in the housing market.

We arent expecting todays outcome will have a material influence on housing trendsTim Lawless, Research Director at CoreLogic Asia Pacific

According to Mr Lawless in CoreLogic’s property value report earlier this month, “The number of homes for sale in Brisbane, Adelaide and Perth is more than 30 per cent below average for this time of the year, while weaker markets like Melbourne and Hobart are recording advertised supply well above average levels”.

According to the ANZ-Roy Morgan Australian Consumer Confidence released before the cash rate decision, households have seen a drop in confidence in their own financial conditions.

It is too soon to know the impact of the decision on housing prices, but for any update on what is happening in the property market, visit view.com.au.

This article was first published at view.com.au as RBA keeps interest rates on hold for now. This is why