‘Holding up’: RBA announces why they held the cash rate

The Reserve Bank of Australia has revealed why it poured cold water over back-to-back rate cuts for mortgage holders.

Australian households are finding a way to pay off their mortgages and can wait a little longer for an interest-rate cut, the RBA minutes show.

According to the latest release of the RBA’s minutes of monetary policy, a rate cut was not even discussed, despite the central bank calling the current conditions “restrictive”.

“While financial pressures remained pervasive across the Australian community, they had generally eased a little,” the RBA board members said.

“The share of borrowers who had fallen behind on their mortgage payments had stabilised at around pre-pandemic levels, and most mortgagors had maintained large liquidity and equity buffers.”

Households are still holding up to higher interest rates. Picture: NewsWire / Nikki Short

The RBA said the overall economy and households were in good shape, largely thanks to a combination of a rate cut in February, lower taxes, higher wages and falling inflation.

Even lower income borrowers are finding a way to get by with the number of mortgages in arrears continuing to fall.

But the central bank conceded there might be vulnerabilities in the overall financial system if households responded to interest rate cuts by taking on more debt.

“While lending standards were currently sound, historical experience both in Australia and abroad suggested that periods of lower interest rates can coincide with riskier borrowing activity, a rapid increase in house prices and, at times, a relaxation of lending standards,’ The RBA board said.

“Historically, borrowing by investors had been particularly sensitive to changes in conditions in the mortgage market.”

It also pointed out debt servicing payments remain at the highest level since 2012 as a share of disposable income, with households trying to get ahead on their mortgage payments.

Official interest rates remained on hold at 4.10 per cent. Picture: NewsWire / Nicholas Eagar

During its March 31 to April 1 meeting, the RBA board left interest rates unchanged at 4.1 per cent, largely in line with market expectations.

It follows a rate reduction of 25 basis points when the central bank met in February.

Despite holding interest rates, the RBA said it expressed caution around increasing tariffs, and the potential fallout between the US and China.

The RBA’s meeting was the day before US President Donald Trump announced his reciprocal tariffs on nearly 75 countries, dubbed “Liberation Day” for Americans, which sent the financial markets into a global sell off.

“In finalising the policy statement, members emphasised the need to be cautious and alert to the evolving economic outlook, and the importance of future decisions being guided by the incoming information and the assessment of risks,” the RBA meeting minutes said.

“They agreed that sustainably returning inflation to target is the board’s highest priority and that it will do what is necessary to achieve that outcome.”

Originally published as ‘Holding up’: RBA announces why they held the cash rate