RBA holds cash rate in huge move for Aussie homeowners

The RBA has kept the cash rate on hold for the second month in a row, letting Aussie homeowners breathe a sigh of relief.

Household borrowers have been spared further suffering thanks to the Reserve Bank of Australia’s decision to hold rates steady again in August.

The decision marks only the third time rates have remained steady since May 2022, when the central bank began one of the most aggressive monetary tightening cycles in its history.

However, it is the second time in a row Australians have been spared fresh rate pain.

Tuesday’s news may be short lived, with RBA governor Phil Lowe admitting there is no guarantee of third hold as he prepares for his final meeting as the bank’s head next month.

Dr Lowe said the bank would be closely monitoring developments in the global economy, trends in household spending, the outlook for inflation and the labour market ahead of the board’s meeting in September.

Since May last year, the official cash rate has soared by 4 per cent, up from a record low of 0.1 per cent and now sits at 4.1 per cent.

At the same time, inflation has remained stubbornly high, peaking at 7.8 per cent in the December quarter.

While current headline inflation readings are now sitting at 6 per cent, services inflation, a measure that more closely reflects spiralling rent and energy prices, has continued to increase.

However in a significant shift, Dr Lowe said on Tuesday fresh economic data was aligned with bringing price pressures under control by 2025.

“The recent data are consistent with inflation returning to the 2–3 per cent target range over the forecast horizon and with output and employment continuing to grow,” Dr Lowe said in his statement following the decision.

Governor Philip Lowe will end his term at the bank in September. Picture: NCA NewsWire / Gary Ramage

But he warned nothing was set in stone, noting “some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe” depending on the “evolving assessment of risks”.

“Price inflation has been surprisingly persistent overseas and the same could occur in Australia,” he said.

“There are also uncertainties regarding the lags in the operation of monetary policy and how firms’ pricing decisions and wages will respond to the slowing in the economy at a time when the labour market remains tight.”

Battered by 12 interest rate increases in the last 15 months, Australian households with an average loan size of $585,000 are now spending an extra $1,415 every month than they were in May last year.

Speaking in question time moments after the decision, Treasurer Jim Chalmers welcomed the decision and the relief it would bring to businesses and households across the country.

“There will be a sigh of relief around Australia,” he said.

“But people are still under the pump and we will continue to take seriously our responsibilities to this inflation fight, which is far from over,” Dr Chalmers said.

The Commonwealth Bank has tipped the cash rate will peak at 4.35 per cent before dropping to 3.35 per cent by September 2024, with NAB also expecting there will be a case for one or two more rate hikes in the coming months.

The board’s next meeting in September will be Dr Lowe’s last after he was unceremoniously dumped as RBA head.

His replacement, current deputy governor Michele Bullock, will commence her seven-year term from September 18.