The RBA made no change to the official cash rate today, leaving it at 4.35% amid volatility on the stock market and concerns over the US economy.
The RBA explained that a pause was the best course of action given where inflation is right now.
‘Quarterly underlying CPI inflation has fallen very little over the past year. In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters,’ said the RBA today.
Some analysts had tipped a rise today given there’s been an increase in new jobs created in Australia and the inflation rate – while much lower than 20 months ago – is not reducing as swiftly as some had hoped.
However, the most recent CPI figures on 31 July showed that inflation was not enough of a problem right now to require a rate rise.
It was slightly above the official forecast, though not as bad as some experts had predicted. In fact, the trimmed mean inflation rate dropped to 3.9% in June from 4% in March.
That said, critics argue that the RBA’s series of rate hikes in the last 27 months may have been excessive, fanning fears of a possible recession as household costs continue to remain high.
Speaking of a recession, Nine newspapers, including the SMH, have suggested that home buyers might see a significant interest rate cut before Christmas to shield the domestic economy from a potential US-led recession.
According to the paper, markets anticipate the RBA will reduce the cash rate to 4.1% by the end of the year, with a 40% chance of an ever bigger ‘super-sized’ cut.
That would be a Merry Christmas given repayments for some households have increased by almost $2000 per month since the RBA began using monetary policy to control inflation just over two years ago.
To illustrate that point, stats show that one in 40 owner-occupiers with loan-to-value ratios above 80% were more than 90 days behind on their mortgage in May, according to research by the RBA’s own economists.
‘Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range,’ added the RBA.
‘Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.
‘Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.’
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Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!