RBA sticks with 4.35% cash rate
Mortgage-holders can breathe easy – at least for now – after the Reserve Bank of Australia board reached a decision that there would be no change to the official cash rate, which remains at 4.35%.
The RBA board, led by governor Michele Bullock, is sticking to its plan to drive inflation down to its target 2% to 3% range and both inflation and unemployment are key factors when considering interest rates.
Most finance industry experts had predicted the Reserve Bank would hold off on lifting the cash rate, with only about 20% suggesting the central bank would opt for a rate hike at its August meeting.
The RBA would have been buoyed by the fact that the annual trimmed mean inflation, a measure of underlying inflation, was 3.9% down from 4% in the March quarter – the sixth quarter in a row in which inflation had dropped.
Seasonally adjusted unemployment had also risen slightly to 4.1% in June, according to the Australian Bureau of Statistics.
In its decision on Tuesday, August 6, the Reserve Bank board said inflation had fallen substantially since its peak in 2022, as higher interest rates had been working to bring aggregate demand and supply closer towards balance.
“But inflation is still some way above the midpoint of the 2 to 3% target range,” the RBA stated.
“In underlying terms, as represented by the trimmed mean, the CPI rose by 3.9% over the year to the June quarter, broadly as forecast in the May Statement on Monetary Policy (SMP).
“But the latest numbers also demonstrate that inflation is proving persistent. In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters. And quarterly underlying CPI inflation has fallen very little over the past year.
“The central forecasts set out in the latest SMP are for inflation to return to the target range of 2 to 3% in 2025 and approach the midpoint in 2026 … returning inflation to target within a reasonable timeframe remains the Board’s highest priority.”
How the mortgage industry reacted
Leaders in the mortgage and finance industry mainly welcomed the Reserve Bank’s decision to keep the cash rate steady at 4.35%.
Rate Money
Ryan Gair (pictured above left), CEO of non-bank lender Rate Money, which specialises in self-employed clients, said holding the cash rate again at 4.35% would not help the two million Australian small business owners already facing tremendous challenges due to high costs of living, especially in areas like petrol, insurance, and commercial rent.
“Compounding this is that many are still dealing with the lingering impacts of COVID-19, as they repay losses incurred during the lockdown years,” Gair said.
“The only real positive is that another hold on the cash rate provides a predictable environment, which is extremely important for small business owners who obviously value and need that stability.”
For brokers, the Reserve Bank’s decision also meant a more consistent market, potentially leading to demand for refinancing and new loan products.
“If inflation remains within the target range and the economy continues to grow steadily, we suspect the RBA will maintain the current rate for the majority of the 2025 financial year with potential cuts in the last quarter,” Gair said.
“However, all bets are off if inflationary pressures remain or increase following the release of the next CPI in September.”
outsource Financial
Tanya Sale (pictured above centre), CEO of aggregator outsource Financial said the RBA had made a good decision, considering that there was a slight movement (not in the way we wanted) regarding the inflation rate.
“The decision was probably based on the measure of ‘underlying’ inflation which declined a little, for the sixth quarter in a row, showing that inflation is still trending down … phew!” Sale said.
“On top of that the RBA would be very conscious on not putting any further pressure on households.
“Under [governor] Michele Bullock you can see the RBA is trying very hard to create some sort of stability in the financial markets and the overall economy. You could hear a sigh of relief after the announcement to hold the current cash rate – at least until the next RBA meeting.”
outsource Financial was named as Australia’s Top Aggregators in Brokers on Aggregators award. Read all the winners here.
Liberty Network Services
Daniel Marsi (pictured above right), CEO of aggregator Liberty Network Services, said the RBA’s decision to hold the cash rate was understandable given the inflation figures recently released.
Marsi said while inflation was above the 2% to 3% target range, current interest rates were clearly having their desired effect.
“ From here, it’s a balancing act for the RBA around trying to kerb inflation over the coming quarters,” he said.
“With buyers active across varied property price bands, brokers are well positioned to continue supporting customers with a range of solutions. Whether they’re looking to upsize, downsize or consolidate debt, there is a fantastic opportunity for brokers to create ongoing relationships with clients.”
Do you think the RBA made the right interest rates call in August? Comment below.
