Official cash rate on hold as inflation eases
The RBA today opted to hold the official cash rate at 4.10%, registering just a second pause since May 2022.
Following four official cash rate rises this year, Australian mortgage holders will be relieved that the RBA has taken a steady as she goes approach.
Last week’s data clearly was a factor in today’s news after headline inflation fell sharply to 5.6% over the 12 months to May, down from 6.8 per cent in April.
However, inflation is still too high for the RBA’s liking, which means there could be more rises this year.
‘Interest rates have been increased by 4 percentage points since May last year. 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,’ said the RBA today.
Underlining the current economic dilemma were comments by the RBA deputy governor. She noted in a recent speech that the jobless rate would need to rise to 4.5% in order for it to have a downward effect on inflation.
With the current unemployment rate at a low 3.6%, around 150,000 Australians would lose their jobs if the rate rose to that level.
What is clear is that high employment is helping to stave off the cost of living crisis for many households right now.
That said, while today’s news will be welcomed by those on variable home loan rates, many Australian mortgage holders are teetering on the edge of the “Mortgage Cliff”.
This refers to a point where borrowers reach the end of their fixed-rate mortgage terms and move into a variable rate or a higher fixed rate.
The peak time for this is July 2023. Repayments for many of these 880,000 loans across Australia are set to soar as mortgage terms are reset.
No doubt the RBA will be monitoring this and other data when they next meet on 1 August.
‘High inflation makes life difficult for everyone and … if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.
‘For these reasons, the Board’s priority is to return inflation to target within a reasonable timeframe,’ the RBA stressed, adding that ‘further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe.’
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