RBA keeps interest rates at 4.35pc as ANZ boss Shayne Elliott warns against optimism

Further signs of a slowdown in the economy has seen the RBA keep rates unchanged for a third meeting in a row, as experts say the decision could drive house prices even higher.

The Reserve Bank’s decision to keep the cash rate on hold is expected to underpin further growth in property prices across the country as Australians look to avoid another boom and feel increasingly confident of mortgage relief on the cards.

The decision was widely expected by economists and markets, and leaves the cash rate at its highest since 2012 of 4.35 per cent.

Economists expert that a further slowdown in inflation coupled with a soft economy will give the central bank room to cut interest rates and offer relief to mortgage holders from as soon as September.

Any mortgage relief will however pale in comparison to how much repayments have rocketed since the first rate rise this cycle in May 2022. On the average $500,000 loan payments have increased $1210 a month and $2420 on a $1m loan.

Analysis from RateCity.com.au shows that a single 25-basis-point cut would cut about $76 a month for a $500,000 loan, $113 a month for a $750,000 loan, and $151 monthly for a $1m loan.

RBA governor Michele Bullock said at her post-meeting press conference that the central bank was not ruling anything in or out with regards to an interest hike. Markets perceived this as a removal of its tightening bias after last month’s statement said it will be “some time yet before inflation is sustainably in the target range.”

“We’re not confident enough to say we can rule out further interest rate changes, but we do think we are on the path to get ourselves back to inflationary targets within our forecast bearings,” she said.

PropTrack senior economist Eleanor Creagh said the hold in the cash rate will install further confidence in the housing market for both buyers and sellers and would therefore underpin growth in property prices after a strong increase over the past 12 months.

“The positive tailwinds for housing demand and a slowdown in the completion of new homes are likely to offset the impact of reduced affordability and a slowing economy,” she said.

As a result, prices are expected to lift further in the months ahead, particularly while the expectation remains that interest rates will move lower in late 2024.”

PropTrack earlier this month reported that national home prices lifted 0.45 per cent to a record high in February, which was the largest monthly increase since October 2023. Prices in Brisbane and Adelaide were 60 per cent higher than before the pandemic and 16.5 per cent above March 2020 levels.

Ms Bullock said the RBA been surprised at the growth of house prices against the backdrop of interest rate rises and other economic pressures.

“The bottom line with housing prices is that it is really about supply and demand and this goes for housing in general,” she said.

“As interest rates rise, borrowing ability of households declines so because your repayments go up so you can borrow less. It is true that effect is there but ultimately, the bigger force in housing, comes down to supply and demand, and that is something that governments can deal with in terms of development policies, well located land and infrastructure.”

Deloitte Access Economics and CBA remained of the view that interest rates have peaked and that rate cuts will need to occur from September of this year, while others such as ANZ expect relief for households to be delayed until November because of tax relief.

“Slow economic growth, and a rising unemployment rate, partly offset by the support of tax cuts from 1 July, along with decelerating inflation, means a pivot from containing inflation to stimulating growth will need to occur in 2024,” Deloitte Access Economics partner Stephen Smith said.

But ANZ Bank chief executive Shayne Elliott believes the market – and his own bank – is too optimistic in its rate cut expectations, warning that a downward move may not come this year.

“The house view at ANZ is that we’ll probably see rate cuts towards the end of the calendar year. My personal view is that is still optimistic,” Mr Elliott said on Monday.

“I still think that inflation is more hard set in Australia and around the world than people think. Why? Because it’s starting to be built into people’s expectations and what we’re seeing is wages are growing pretty well so people are out spending that little bit more money.”

Originally published as RBA keeps interest rates at 4.35pc as ANZ boss Shayne Elliott warns against optimism