Relief as Reserve Bank hits pause on interest rates

Mortgage holders can breathe a sigh of relief as the Reserve Bank keeps interest rates on hold.

Australia’s central bank moved to the sidelines in July after 12 interest rate rises in the tightening cycle, leaving the official cash rate at 4.1 per cent.

The ASX jumped 30.9 points, or 0.43 per cent, within one minute of the RBA announcement.

RBA governor Philip Lowe said keeping interest rates steady would give the board more time to assess the state of the economy.

But in a statement, Dr Lowe kept a reference to more tightening if the situation calls for it, which he included last month.

“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 how the economy and inflation evolve,” he said.

A sharp fall in the monthly consumer price index fed into the July decision, but the governor said inflation was “still too high and will remain so for some time yet”.

Dr Lowe also flagged signs of a slowing economy and a labour market starting to lose some heat.

Household consumption was also highlighted as a “significant source of uncertainty”.

“The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending,” Dr Lowe said.

The 400 basis points of interest rate hikes so far have been felt keenly by borrowers.

The aggressive tightening has added more than $1000 to monthly repayments on the standard variable rate home loan compared with April last year, before interest rates started going up.

 

Poppy Johnston
(Australian Associated Press)

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