The Reserve Bank of Australia (RBA) has chosen to maintain the cash rate at 4.1% for the third consecutive month, indicating that interest rates may have reached their highest point under outgoing governor Philip Lowe. This decision follows recent data that confirms a quicker-than-expected decline in inflation.
The Consumer Price Index for July showed a decrease in annual inflation to 4.9%, which is still above the RBA’s target range of 2-3%, but in line with expectations. Governor Lowe acknowledges the decline in inflation but states that it remains too high and will continue to be elevated for some time.
Economist Eleanor Creagh suggests that the slowdown in inflation and consumer spending has relieved some pressure on the RBA, which is focused on avoiding a recession while bringing inflation back into its target range. The RBA may need to consider further tightening of monetary policy to ensure inflation returns to the desired level, depending on the evolving assessment of risks and data.
During the final year of Governor Lowe’s term, interest rates reached an 11-year high, with increases of 400 basis points. This tightened monetary policy has had a notable impact on economic activity, with consumer spending slowing down. Creagh expects conditions to soften further as the full impact of the tightening measures is realized, potentially leading to lower inflation.
Despite the high interest rates, the property market in Australia has seen steady growth. Home values have risen consistently since the beginning of the year, reaching record highs in some cities. Sellers have become more confident, and there has been an increase in properties hitting the market, especially in Sydney and Melbourne.
The RBA’s decision to keep the cash rate stable is likely to maintain buyer and seller confidence as the spring selling season begins. It is expected to continue lifting home prices and provide certainty around borrowing costs.
Overall, while interest rates have potentially peaked, the RBA will closely monitor economic data to ensure that inflation returns to its target range. The property market is expected to remain strong, supporting buyer and seller confidence in the coming months.
– Reserve Bank of Australia
– REA Group
– Australian Bureau of Statistics