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Saturday, June 10, 2023

The RBA kept rates on hold as it awaits the impact of previous hikes

The Reserve Bank is giving mortgage borrowers at least a temporary respite by keeping interest rates on hold at a board meeting today.

After 10 consecutive rate hikes, the RBA decided to wait and see how the economic data unfolds amid early signs that the previous rate hikes are starting to weigh on consumer spending and lower inflation.

However, RBA Governor Philip Lowe did not guarantee that interest rates would not rise again.

“The board understands that further monetary tightening may be required to ensure inflation returns to target,” he said in a statement after the meeting.

Today’s decision leaves the RBA’s interest rate target at 3.6%, which is still the highest level since May 2012.

The official interest rate rose 3.5 percentage points from the pandemic emergency low of 0.1 percent.

RateCity says the rate hike has added nearly a thousand dollars a month to $500,000 in principal and interest repayments with 25 years remaining.

Temporary pause could become ‘more permanent’

Asia-Pacific economist Callam Pickering, who used to work at the Reserve Bank, said he expected Australia’s economy to slow significantly in the second half of this year, making further rate hikes unnecessary.

“This is based on the belief that household conditions will worsen due to much higher mortgage payments, falling asset prices, and unprecedented declines in inflation-adjusted wages.”

“[The RBA board] will likely need at least the next month or two to assess how these past rate hikes have affected the economy.

“We believe the impact will be large enough to make this temporary break more permanent.”

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