RBA pauses interest rates in October for fourth straight month although inflation still a huge concern

There was a hidden warning buried in the central bank’s message to Australians that many may have missed.

The RBA has paused interest rates at its October meeting for the fourth consecutive month in a move that will be a massive relief for millions of borrowers around the country.

On Tuesday afternoon, Australia’s central bank announced it would keep the cash rate at 4.1 per cent.

This is the first month the RBA has operated under new leadership, with Michele Bullock taking over from previous governor Philip Lowe after he resigned from the position.

But in her address to the general public after passing down her decision, Ms Bullock issued a sobering warning to homeowners indicating that like her predecessor, she would not rule out future rate hikes.

In her first statement in her official capacity as the new governor, Ms Bullock said that the many back-to-back rate hikes were finally “working”.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” Ms Bullock wrote in her statement.

She added that inflation had “passed its peak but is still too high and will remain so for some time yet”.

There were a number of data points that made the RBA think it was not necessary to hike the rate again for the month of October, including goods prices “easing further” and the Australian economy growing more than expected in the first half of 2023.

But there were still some areas of concern.

“The prices of many services are continuing to rise briskly and fuel prices have risen noticeably of late,” she noted.

She kept her options open with future rate hikes.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” Ms Bullock vowed.

It comes as other experts warned that rate cuts were still a long way off.

Michele Bullock is now at the helm of the RBA. Picture: John Feder/The Australian

Even with the many months of interest rate pauses, experts have warned that rate cuts are likely not on the horizon until the year after next.

Bond markets, which forecast future interest rates, are suggesting that interest rate cuts may no longer be on the cards for 2024, and it’s a view shared by a former senior economist at the Reserve Bank of Australia (RBA).

Challenger chief economist Jonathan Kearns, who was head of domestic markets at the RBA until March this year, previously told news.com.au on Monday that he doesn’t see interest rates falling until 2025.

Mr Kearns said that Australia was now facing “a long plateau rather than a peak in rates” and that “if there is a move in the next 12 months I think it’s more likely to be up than down”.

The decision to hold the rate was entirely in line with market expectations. A panel of 38 financial experts hosted by comparison website Finder found that 100 per cent of panellists were predicting a rate pause.

It was the first time since rates started going up in May last year that the entire panel was in agreement.

The RBA has increased interest rates every month since May last year, with the exception of April, July, August, September and now October, providing some welcome relief to Aussie mortgage holders.

Still, as it stands, Australians are in the throes of the nation’s highest cash rate since 2011, enduring 400 basis point increases over the space of a year. The cash rate has jumped significantly from the historic pandemic low of 0.1 per cent to its current rate of 4.1 per cent.

And even with the pause, Australians are still being slammed with extra costs from lenders.

Michele Bullock said rate hikes were finally showing signs of working, hence why rates were held for this month. Picture: NCA NewsWire / Martin Ollman

It comes as new research has found that half of Australia’s lenders have increased variable rates since the July cash rate decision to pause by an average of 0.15 per cent.

Comparison site Canstar released research on Tuesday that found of the 90 banks and lenders it analysed, 43 of them – which is 48 per cent – have increased variable interest rates.

The same could be said for fixed interest rates, with the analysis finding that 81 per cent of lenders offering fixed rates increased them by an average of 0.27 per cent.

Canstar money expert Effie Zahos said of the findings: “Canstar analysis shows that lenders are not waiting for official cash rate movements to adjust their home loan interest rates.

“In an attempt to claw back profit margins, a significant number of lenders have increased both variable and fixed rates in the three months the Reserve Bank has left the cash rate paused at 4.1 per cent.”

It comes as, in February, some of Australia’s biggest banks were called out for ripping off customers for their return on savings accounts.

The research found that although banks were quick to pass on the buck to mortgage holders whenever interest rates went up, the same couldn’t be said for customers with savings.

Homeowners are struggling. Picture: William West/ AFP

The effects of the RBA’s many months of back-to-back interest rate hikes are still yet to be seen.

New analysis from RateCity.com.au has found that 730,000 homeowners have fallen off the mortgage cliff so far this year.

Another 150,000 Australians will join their ranks between now and the year’s end.

Meanwhile, secret briefings inside the Reserve Bank reveal a startling surge in the number of middle-class Australians on six-figure salaries seeking a financial crisis support in the wake of increased mortgages.

Internal documents obtained under freedom of information laws showed that affluent Australians were using the National Debt Helpline – a resource offering those in need access to free financial counselling - for the very first time in their lives.

“The NDH is experiencing an increasing volume of calls from people who have not experienced financial hardship or drawn on social services previously,” the memo reads.

“Many callers were gainfully employed. Examples were given of mortgagees on six figure salaries residing in prosperous suburbs of Sydney.”

– with Shannon Molloy and Michelle Bowes