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RBA makes July cash rate call

By Kyle Robbins
04 July 2023 | 12 minute read
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The Reserve Bank of Australia (RBA) delivered the first cash rate decision of the new financial year at its monthly board on Tuesday, 4 July.

It was billed as a tight decision in the buildup, with economic conditions painting the possibility of either an increase or hold with Australia’s central bank opting to hold the cash rate at 4.10 per cent.

Following recently released Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) indicating national inflation had begun easing, the RBA chose to incite the second cash rate pause since last May.

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For borrower’s hopeful the central bank’s latest cash rate movement may signal a shift towards favourable lending conditions and lower financial strain, PropTrack’s senior economist, Paul Ryan, warned the cycle is far from over.

“The RBA held the cash rate target steady today,” he said. “Nevertheless, the RBA signalled that more tightening may be needed to rein in inflation, with many expecting another hike to come as early as next month.”

For Anneke Thompson, chief economist at CreditorWatch, the cash rate is “now nearing, if not at, the point in the monetary policy tightening cycle where further rises to the cash rate will have limited further effect.”

“Households with a home loan have already endured the fastest and steepest rise to the cash rate in history, with most of these people unable to increase income enough to offset their higher interest repayments,” she added.

Further pinching the pockets of Australian borrowers is the return of the savings rate to pre-COVID levels, meaning “COVID era savings will have been exhausted by many people.”

For this reason, Ms Thompson believes it is “highly likely that these households with a home loan have already pulled back significantly on their discretionary spending.”

Given the RBA’s judgement that recent data, particularly that which covers the labour market and inflation, was “in line with its expectation,” Mr Ryan explained the central bank is likely holding out for additional inflationary pressures data, amongst other data points.

“More tightening is expected to be needed to bring inflation back to the RBA’s target, but rates are close to their peak, which is good news for the housing market.”

Such has been the resilience of the national housing market in the current whirlwind of economic headwinds, including rising rates, CoreLogic’s most recent Home Value Index (HVI) found the Australian home prices rose for the fourth month running.

“Offsetting higher mortgage rates, strong buyer demand has been focused on a slower flow of new property listings and led to price increases,” Mr Ryan noted.

Moving forward, the economist believes home price growth is unlikely to falter over the months ahead, even if “continued higher interest rates remain a risk for the housing market.”

He predicts “eroded borrowing capacities and weaker economic conditions” to catch up with the property market once again and inspire value declines akin to the back half of 2022.

As for the future of the cash rate, Ms Creagh believes “the RBA will now be hoping businesses slow their hiring intentions, taking some pressure off wages and reducing inflation in labour-intensive parts of the economy.” These trends will play a role in deciding the trajectory of the cash rate in coming months.

REB will continue its coverage of the latest cash rate hike in the coming days.

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