Borrowers, renters and businesses have been spared further financial pain after the Reserve Bank held rates steady for the third consecutive month.
In a parting gift from RBA boss Philip Lowe, who exits the bank in less than a fortnight after 43 years of service, the soon-to-be ex-governor also signalled that the economy was on track for a soft landing.
The cash rate remains at 4.10 per cent, where it has sat since June, as the RBA takes stock of whether rate hikes already in the system are sufficiently restrictive to bring inflation back to the 2 to 3 per cent target band.
“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,” Dr Lowe said in the statement.
While Dr Lowe cautioned inflation “is still too high and will remain so for some time yet,” he added: “The recent data are consistent with inflation returning to the 2–3 per cent target range over the forecast horizon and with output and employment continuing to grow.”
“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.”
However underlying inflation remains persistent, with Dr Lowe cautioning that “significant uncertainties” including still-high services inflation and weak consumption demand posed a risk to Australia’s economic outlook.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks,” Dr Lowe added.
Despite the governor’s warning, economists said that bar a surprise inflation breakout, rates would remain on hold in the months ahead.
“Having deemed the inflation outlook was in an acceptable position last month, there was little new data to spur the RBA into action in September,” Oxford Economics head of macroeconomic forecast Sean Langcake said
“Unless inflation expectations start to drift upward, we expect rates will be on hold for an extended period. We do not expect the change of Governor from next month will make a material difference to the Bank’s approach on interest rates.”
Debate among economists is now increasingly shifting to when the central bank will move to cut rates rather than raise them again.
Speaking on the floor of the House of Representatives during Question Time, Treasurer Jim Chalmers said the RBA’s decision would be a “third moment of relief and reprieve for many Australians and small businesses that we know are already under the pump.”
“We understand that Australians are still under pressure, even after this decision today. That’s why we are working for Australia to roll out billions of dollars in cost of living relief in ways that take the edge off inflation,” Dr Chalmers said.
The RBA’s decision was in line with consensus forecasts. Ahead of the meeting, markets and the big four banks expected the official cash rate to remain unchanged.
Economists at Commonwealth Bank, ANZ and Westpac have forecast that the central bank is now taking an extended pause, and its next move will be to cut rates.
Recent figures show that the RBA’s strategy to pursue the most aggressive monetary tightening cycle since the 1980s is successfully acting as a handbrake on the economy.
Monthly inflation data, released by the Bureau of Statistics at the end of August showed the annual inflation eased to 4.9 per cent in July, down from 5.4 per cent in June.
Separately, fresh ABS data released on Monday showed company profits had plunged in the June quarter, while household spending also slumping in July.
The central bank is also concerned about the deteriorating economic conditions in China amid concerns that its toxic property sector risks contaminating the broader economy.
The rapid increase of interest rates, 12 times since May last year, has been felt most severely by the 3.2 million Australian mortgagors.
Households with an average mortgage size of $585,000 are now paying $1415 more every month than they were before the RBA started its current tightening cycle according to data from Compare the Market.
Higher interest rates have also substantially diminished the amount households can borrow.
A family with two children and a household income of $150,000 have seen their borrowing slide by 28 per cent to $623,400 since May 2022.
For seven years, Lowe has been the public face of the RBA. While praised for steering Australia’s monetary policy settings through the upheaval of the COVID-19 pandemic.
However, the central bank’s pandemic-era guidance that the RBA would not increase the cash rate until at least 2024 proved controversial when the bank begun its punishing run of 12 rate rises in May 2022.
On Thursday, Dr Lowe will make his final remarks as governor at his annual speech to the Anika Foundation in Sydney.
Deputy governor Michele Bullock, who was announced as Dr Lowe’s successor in July, will take the reins as Australia’s top central banker from September 18.