Mortgage relief for millions of Australians as the Reserve Bank pauses interest rate hikes after ten consecutive increases – but here’s why the break from rate rises won’t last for homeowners
- Reserve Bank cash rate left at 3.6 per cent
- First monthly rates pause since April 2022
Australian borrowers have been spared a rate rise for the first time in a year but the relief is likely to be short lived because inflation is still too high.
The Reserve Bank of Australia has left the cash rate on hold at an 11-year high of 3.6 per cent, marking the first pause since April 2022 – but Governor Philip Lowe has hinted another rate rise was likely.
This month’s pause has followed 10 consecutive monthly interest rate rises, the most severe pace of monetary policy tightening since the era of the RBA target cash rate began in 1990.
Dr Lowe acknowledged the full effects of the previous rate rises were yet to be felt, noting the RBA needed to look at the effects of an economic slowdown.
‘The board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt,’ he said.
‘The board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook.’
Australians have been spared a rate rise for the first time in a year but the relief is likely to be short lived
Inflation has moderated from last year’s 32-year high of 7.8 per cent with the monthly measure for February showing a consumer price index of 6.8 per cent.
But this measure, from the Australian Bureau of Statistics, is still well above the RBA’s 2 to 3 per cent target.
Dr Lowe hinted at another rate rise, with inflation not expected to return to the target until mid-2025.
‘The board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target,’ he said.
‘The central forecast is for inflation to decline this year and next, to around 3 per cent in mid-2025.’
The Commonwealth Bank and Westpac both correctly predicted a pause in April but they are expecting another 0.25 percentage point rate rise in May that would take the cash rate to 3.85 per cent.
One more rate rise means a borrower with an average, $600,000 mortgage would see their monthly repayments climb by $95 to $3,472, up from $3,377.
Annual repayments on a typical loan have already increased by $12,852 since the rate rises began in May, ending the era of the record-low 0.1 per cent cash rate.
On top of that, Australia’s 880,000 borrowers with a fixed-rate mortgage face severe increases as their ultra-low two per cent fixed rate loan periods expire in coming months, which will see many forced on to ‘revert’ variable rates of more than seven per cent.
RBA Governor Philip Lowe acknowledged the full effects of the previous rate rises were yet to be felt, noting it needed to look at the effects of an economic slowdown. But he also hinted at another rate rise (he is pictured at Sydney’s Boonie Doon Golf Club)
The Reserve Bank of Australia has left the cash rate on hold at an 11-year high of 3.6 per cent, marking the first pause since April 2022 (pictured is a stock image)