Interest rate shock: RBA keep rates on hold
The Reserve Bank of Australia has made a shock decision to leave interest rates unchanged in July, despite widespread predictions they would deliver back-to-back cuts.
The RBA held the official cash rate at 3.85% on Tuesday, citing uncertainty in the global economy and "slightly stronger than expected" inflation.
The move leaves home loan borrowers out in the cold this winter, with many having expected to see some mortgage relief following strong market consensus for a July cut.
"I’m sure borrowers and hopeful buyers will be disappointed by the Reserve Bank’s decision today to keep the nation’s official cash rate on hold," said Mortgage Choice chief executive Anthony Waldron.
“Today's decision doesn’t mean further cuts are off the table. There are four monetary policy board meetings still to go this year, so rates could drop further.”
Property momentum to take a hit
PropTrack senior economist Anne Flaherty agreed further rate cuts were likely in the months ahead given easing inflation and 'weaker than anticipated' economic growth.
“Today’s decision to hold may slow the pace of [property] price growth seen in the months following the February and May cuts," Ms Flaherty said.
“Nationally, prices are up 3.2% since the start of the year, adding around $26,000 to the median price of a home.
“For many, affordability constraints continue to weigh heavily, as many households grapple with stretched budgets.”
In a statement following the decision, the board said it could "wait for a little more information" to confirm that inflation remains on track, and said it was well placed to "respond decisively to international developments if they were to have material implications for activity and inflation in Australia".
"The board will be attentive to the data and the evolving assessment of risks to guide its decisions," the statement said.
"In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market."
What the RBA wants to see
The surprise decision to leave interest rates on hold comes despite a further easing of inflation in May.
Annual trimmed mean inflation – the central bank’s preferred measure to consider – rose 2.4% in the month of May, down from 2.8% in April.
But the central bank is likely waiting to see the more reliable quarterly inflation data, set to be released at the end of July, as well as the impact of US President Donald Trump's new global trade tariffs, set to come into effect at the start of August.
If the upcoming June quarter Consumer Price Index shows that inflation remains within the RBA’s 2-3% target range, Mr Waldron said a cut could be expected after the bank's August meeting.
Source: REA
