RBA enters new era with rate pause

The Reserve Bank of Australia has held the cash rate at 4.1 per cent for a fourth consecutive month, in a widely expected move which marks its first under new leadership.

The RBA’s October rate pause was the first decision announced under new governor Michele Bullock following the recent departure of Philip Lowe.

Experts had widely anticipated the pause, which was taken to give the RBA board further time to assess the impact of 12 rate rises undertaken over a 13-meeting span between May 2022 and June this year.

The wording of Ms Bullock’s comment around the timing almost matched that of Mr Lowe’s final monetary policy decision announcement last month.

"Interest rates have been increased by 4 percentage points since May last year," Ms Bullock 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.

"In light of this and the uncertainty surrounding the economic outlook, the board again decided to hold interest rates steady this month.

"This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook."

Ms Bullock said further monetary policy tightening may be required to keep inflation on target. 

Speaking on today’s result, real estate analyst PropTrack's senior economist Eleanor Creagh said interest rates had likely peaked in the current cycle as economic momentum subsides and underlying inflation and consumer spending figures ease pressure on the RBA.

“The full impact of monetary tightening to date is yet to be felt and we’re likely to continue to see inflation moving lower as a result,” she said.

“Unless there is a shift in the disinflationary outlook, it’s likely the peak in the cash rate is already in for this monetary policy tightening cycle.

The rate of annual underlying inflation moderated to 5.5 per cent in August, with national unemployment steady at 3.7 per cent.

Ms Creagh said she expected the cash rate decision to underpin buyer and seller confidence in the spring selling season ahead.

Head of Deloitte Access Economics Pradeep Philip labelled today's decision "the correct one".

"There is clear evidence of a slowing economy, with confidence waning, consumer spending weak and the retail sector in the doldrums," he said.

"Increasing interest rates in this environment would have simply added to the economic risks facing the economy."

Mr Philip called for prioritisation of macroeconomic reform to enhance productivity without tipping the economy into recession.  

AMP head of investment strategy and chief economist Shane Oliver said he remained concerned that tightening had already gone too far, forecasting a 50 per cent chance of a recession. 

"As a result, while the risk is still on the upside for the cash rate in the short term with 40 per cent chance of another hike by Christmas, the RBA probably won't have to act on its tightening bias, and we continue to see it cutting rates through next year starting around June," he said. 

Mr Oliver said the similarity between Mr Lowe and Ms Bullock's monetary policy statements suggested continuity was a focus for the RBA in setting rates. 

Moody's Analytics was also confident that rate cuts would begin in the second half of 2024, claiming the RBA had done enough to maintain its current level through to next year.

CommSec Economics also held this view, predicting an unchanged cash rate well into 2024 was the most likely scenario. 

HSBC chief economist Australia NZ & global commodities Paul Bloxham bucked the trend, predicting an RBA rate hike by a further 25 basis points in November.