Australian mortgage holders can breathe a sigh of relief following the Reserve Bank of Australia’s decision to pause cash rate hikes.
The RBA met on Tuesday and decided not to hike the cash rate for only the second time since last May.
WATCH THE VIDEO ABOVE: Economists make their rates predictions as threat of recession looms.
The cash rate remains at 4.1 per cent.
RBA Governor Phillip Lowe said the pause would “provide some time to assess the impact of the increase in interest rates to date and the economic outlook”.
“Interest rates have been increased by four percentage points since May last year,” he said.
“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.”
Lowe added that the combination of higher interest rates and cost-of-living pressures is leading to “a substantial slowing in household spending”.
“While housing prices are rising again and some households have substantial savings buffers, others are experiencing a painful squeeze on their finances,” he said.
“There are also uncertainties regarding the global economy, which is expected to grow at a below-average rate over the next couple of years.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”
Of the big four banks, three had anticipated a hike this month. Only Commonwealth Bank predicted a pause before a resumption of increases to the cash rate in August.
Minister for Finance, Katy Gallagher, told reporters on Tuesday that the federal government’s economic plan is to “look at where they could take the edge off some of those cost of living pressures”.
“When you look across the government, there is work happening in pretty much every single portfolio,” she said.
“But we have been in government for a year and there is work underway.
“We know that we have to invest in our people, train them up, get them ready for the jobs of the future.”
‘Buckle up for further hikes’
Graham Cooke, head of consumer research at Finder, said the decision could have gone either way.
“The latest inflation figures made a strong case for the RBA to pause its series of rate hikes,” he said.
“However, the RBA repeatedly states that its intention is to get inflation all the way to the target rate of 2-3% and we aren’t there yet.
“While homeowners have been given a break this month, they should buckle up for further hikes this year.”
Meanwhile, Moody’s Analytics economist Harry Murphy Cruise said the economy was in a “tug-of-war”, caught between rising prices and the RBA hiking interest rates aggressively.
But there’s hope that the moves are beginning to bring inflation down.
The latest ABS figures show the inflation rate in the 12 months to May slowed to 5.6 per cent.
But that’s still well above the RBA’s target of between 2 per cent and 3 per cent.
“As it stands, the RBA has its nose ahead in the contest,” Murphy Cruise said.
He said the economy was slowing, spending was stalling, and firms were winding back their hiring plans, which was all helping to bring down inflation.
– With AAP
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