RBA pauses rate ahead of Christmas

The Reserve Bank of Australia has held the country’s official cash rate at 4.35 per cent, offering a slight relief to mortgage holders 20 days before Christmas.

The announcement comes after the RBA lifted the cash rate by 25 basis points, to 4.35 per cent, on November 7.

Today’s decision to hold the cash rate is still a significant jump from the 3.1 per cent cash rate at the start of the year.

RBA governor Michele Bullock said the board decided to leave the cash rate target unchanged and the interest rate paid on Exchange Settlement balances remained unchanged at 4.25 per cent.

"Last month, the board increased interest rates by 25 basis points, following a period of four months where it had held interest rates steady," she said.

"This decision reflected the board’s view that progress in bringing inflation back to the target range of 2 to 3 per cent was looking slower than earlier forecast.

"While the economy has been experiencing a period of below-trend growth, it was stronger than expected over the first half of the year.

"Underlying inflation was higher than expected at the time of the August forecasts, including across a broad range of services. Conditions in the labour market had eased but remained tight.

"Given this, the board judged that the risk of inflation remaining higher for longer had risen and an increase in interest rates was therefore warranted to be more assured that inflation would return to target in a reasonable timeframe."

Ms Bullock said returning inflation to target within a reasonable timeframe remained the board's priority.

"The impact of the more recent rate rises, including last month's, will continue to flow through the economy," she said.

"High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.

"Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labour market."

The RBA lifted the cash rate by 25 basis points to 3.35 per cent at its first meeting of 2023, in February.

Today was the last RBA’s monetary policy decision meeting scheduled for 2023.

Responses

PropTrack senior economist Eleanor Creagh said the PropTrack Home Price Index showed property prices have defied expectations and home values remained resilient to higher interest rates this year.

“After falling 4.02 per cent from March 2022 to December 2022, national prices are now up 5.53% per cent from the low point recorded in December 2022,” she said.

“This brings them 1.29 per cent above their previous peak to a fresh record high.”

“The decision by the Reserve Bank to hold the cash rate steady in December will maintain both buyer and seller confidence.

“Looking ahead, interest rates are either at, or very close to, their peak.

“The outlook for the economy is weaker, however, population growth is set to remain strong.

“Together with a shortage of new home builds and challenging conditions in the rental market, prices are expected to continue rising, though the pace of growth will continue to slow.”

Ray White Group chief economist Nerida Conisbee said inflation was coming down but not quickly.

“Inflation continued its painfully slow downward trajectory in October, resulting in rates remaining on hold in December,” she said.

“The most significant increase in the inflation basket continues to be housing, in particular rents.

“While construction increases have slowed considerably, the lack of rental accommodation is driving up inflation.”