Why the RBA left the cash rate on hold at 4.1 per cent following the August 2023 monetary policy board meeting

As with Bazball, opinion divides on the RBA’s inflation response. Like Ben Stokes, Philip Lowe must feel vindicated. The guv is finally winning so rates are on hold, writes John Rolfe.

• RBA holds cash rate, bringing relief to homeowners
• 13 reasons why the RBA should not raise rates again

As with Bazball, opinion divides on the RBA’s inflation response. Like Ben Stokes, Philip Lowe must feel vindicated. The guv is finally winning so rates are on hold.

In a statement following the Reserve Bank of Australia board’s decision to leave the cash rate at 4.1 per cent on Tuesday, Mr Lowe said “recent data are consistent with inflation returning to the two to three per cent target range over the forecast horizon”.

To be sure, Mr Lowe did also note that inflation is still too high.

But what today’s decision tells us is that he’s content with the speed at which it is falling.

As Terry McCrann has explained better than anyone else, inflation is now significantly lower than the RBA had been hoping.

Ben Stokes celebrates on day five of the final Ashes Test. Picture: Getty Images

While the headline consumer price index for the year through June came in at six per cent last week, the final three months of the 2022-23 financial year saw costs go up by just 0.8 per cent — the slowest pace since the first quarter of 2021-22.

Annualised, that’s inflation of just 3.2 per cent. The RBA had been expected that 2022-23 fourth-quarter number to be 1.1 per cent, or 4.4 per cent annually.

Inflation in the second half of 2022-23 was 2.2 per cent. In the first half it was 3.7 per cent (and 0.1 per cent was lost to rounding). That’s a significant decline.

Still, Mr Lowe said in his statement that “there are … significant uncertainties” about the inflation outlook, including what happens with household consumption”.

“Many households are experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income,” he said.

Mr Lowe leaves the RBA building in Sydney. Picture: Monique Harmer

Mr Lowe only had to look around at auction results in his local neighbourhood on Saturday to confirm that there are people out there with plenty of money and a willingness to spend.

A four-bedroom home at Centennial Ave in Randwick sold for about $5.3 million – a whopping $800,000 above the price guide.

“The vendors are extremely happy,” agent Daniel Cachia of PPP Real Estate said on Tuesday.

Insiders say the strength of prices in that area, and many others, is due to a lack of stock (including no new builds) and the fact that there have been so many interest rates rises now that a lot of the shock value has worn off.

Anyone spending $5m on a home has been around long enough to know that rates go up. They’ve also likely benefited from house prices going up.

All state capitals recorded rises in July. Overall, values have gained five per cent since February, after falling for 10 months.

Mr Lowe has just one meeting left as Governor. He may choose to raise rates a 13th time before he departs.

His statement carries this warning: “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon the data and the evolving assessment of risks.”

But I strongly suspect his work is done.