RBA holds steady on the cash rate bringing relief for homeowners

The Reserve Bank of Australia has brought welcome relief to homeowners with another hold on the official cash rate, leaving it at 4.1%. That should mean lenders also hold off from any increase in their interest rates for people still paying off their mortgage.

The RBA’s governor Philip Lowe said interest rates have already 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,” he said in a statement after today’s regular board meeting.

“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.”

But Mr Lowe said the board hasn’t ruled out further hikes in the cash rate, saying some “further tightening of monetary policy may be required” in its efforts to bring down inflation.

All eyes are on the inflation figures

The RBA has been increasing the cash rate since May last year as part of its battle against inflation. There have only been two pauses in the cash rate – in April and July this year.

Economists had been split on whether the RBA would increase the cash rate this August, or keep it on hold. All eyes were on the latest consumer price index (CPI) figures to see what impact the RBA’s strategy was having on inflation.

The most recent quarterly figures from the Australian Bureau of Statistics (ABS) show inflation has eased from a 7.0% annual rise in the May quarter to 6.0% in June, suggesting inflation may have peaked for now and the rate of price growth may be on the decline.

“Inflation in Australia is declining but is still too high at 6.0%,” sayd Mr Lowe.

The RBA’s target is for inflation to be between 2.0% to 3.0% over time.

Mr Lowe said high inflation makes life difficult for everyone and damages the functioning of the economy.

“It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality,” he said in the statement.

“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.”

What next for the cash rate?

The RBA may have held off on any further hike in the cash rate this month but the board has flagged that may be only temporary relief for homeowners.

Further hikes in the cash rate may be on the cards when the RBA changes governor on 18 September and current deputy governor Michele Bullock takes over the role.

That means Philip Lowe will have one final board meeting early next month to preside over in early September before leaving the top job.

Canstar’s Editor-at-Large and money expert, Effie Zahos, says the September board meeting will have the latest monthly CPI data to consider, due out at the end of August. That figure was also showing a steady decline, of 5.4% in the 12 months to June, down from 5.5% in May.

But the monthly CPI figures are prone to some volatility, compared to the quarterly CPI figures.

“If this (monthly CPI) shows a reverse in the downward trend then Governor Lowe does have another opportunity to increase the cash rate one final time before Michele Bullock takes over,” says Effie Zahos.

Looking back to last May, when the cash rate was at a historic low of 0.1%, Canstar Research says there were then 5,199 owner occupier and investment interest rates listed on Canstar.com.au below 5.50%. Now there are just 18 rates.

The lowest variable rate on Canstar.com.au as at 1 May 2022 (prior to the first cash rate rise) was 1.58%, compared to 1 August 2023 when the lowest variable rate is now 5.44% – a huge difference of 3.86%.

“At this rate, it won’t be long till the cheapest home loan has a six in front of it,” says Canstar’s Effie Zahos.

How can I save on my home loan rate?

If your fixed rate home loan is about to come to an end, or even if you think you could be getting a better deal than what you’re currently paying, you can compare home loans with Canstar to see what your options might be, and if there’s a more favourable deal out there for you.

“Competition has now moved from attracting new customers to retaining existing customers,” says Canstar’s Effie Zahos.

“It pays to do an interest rate check with your existing lender. If they don’t come to the party then you need to look elsewhere.

“Switching a $500,000 loan with a 30-year loan term from the average variable rate for existing customers at 6.98 percent to the lowest variable rate of 5.44 percent could cut repayments by $500 per month or $6,000 per year!”

If you are thinking about refinancing your current home loan to a new lender and want to know more about the process and how it works, Canstar has a list of seven mistakes to avoid when refinancing, so you can be better prepared to strike a new deal.

The next RBA board meeting is on Tuesday 5 September.

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