The Reserve Bank of Australia (RBA) has once again decided to keep the cash rate on hold at 4.35 per cent. This decision marks the third consecutive meeting where the central bank has maintained the status quo. However, the latest announcement from the RBA has sparked a glimmer of hope for mortgage holders across the nation.

In a significant shift from its previous stance, the RBA has removed an explicit warning about further interest rate rises from its statement. This change in language suggests that the RBA’s aggressive run of 13 rate increases may have come to an end. The absence of any explicit mention of the possibility of an additional increase in interest rates in the board’s statement has led to speculation that the next movement in interest rates is more likely to be a decrease.

RBA Governor Michele Bullock was quick to downplay the change in sentiment, stating, “We have changed the language, that’s true, but that was in response to some data, which has demonstrated to us that we are still broadly on the path we thought we were on”. Despite this, the shift in language has been interpreted by many as a sign that the RBA is moving towards a more neutral stance on the outlook for monetary policy.

The RBA’s decision to keep the cash rate on hold comes amid signs that growth in the economy has dramatically slowed down following 13 interest rate rises since May 2022. On a per person basis, accounting for population growth, the economy has plunged deeper into a per-person recession. The RBA noted that “inflation is still weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment”.

However, higher interest rates were “working to establish a more sustainable balance between aggregate demand and supply in the economy”. The RBA added that “real incomes have stabilised and are expected to grow from here, which is expected to support growth in consumption later in the year”.

In response to the RBA’s announcement, Treasurer Jim Chalmers hailed the decision as a reflection of the “good progress” made in taming inflation. He stated, “It gives us confidence that inflation is moderating in welcome and encouraging wages”. However, his opposition counterpart, Angus Taylor, said the decision would come as “cold comfort” for households. He argued, “The reality is, Australians’ living standards have collapsed by thousands of dollars. This is money they will never get back, and there is no sign the government is committed to reversing this situation”.

The RBA’s shift in stance, coupled with the removal of explicit warnings about further rate rises, has led to increased speculation about the future direction of interest rates. While the central bank remains cautious, the latest announcement has provided a glimmer of hope for mortgage holders across the nation. As the RBA continues to monitor the economic situation, all eyes will be on its next move.

The impact of the RBA’s decision is most acutely felt by the 3.2 million households with a mortgage. In some cases, these households have experienced monthly repayment increases of more than $1000. With the cash rate at 4.35 per cent, a household with a $500,000 loan is paying $1210 a month more on its mortgage than it was in May 2022, representing a 59 per cent increase, according to RateCity. For a household with a $750,000 loan, that figure is $1815. Borrowers with a $1 million mortgage are paying $2420 a month extra.

If the RBA does cut the cash rate later this year, and the banks pass this rate cut on in full, then someone with a $500,000 mortgage with 25 years remaining would see their monthly repayments go down by $76 in the first cut and by $152 if there were two cuts.

While there is no certainty about when interest rates may fall, there are fears the impact of previous rate rises may slow down the economy more than anticipated. The Reserve Bank, the federal government and Treasury have spent much of the past two years focused on fighting inflation, but now the challenge is to ensure that growth doesn’t slow down so forcefully that it tips Australia into a recession.

The RBA said there were indications of a slowing economy, but that “inflation is still weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment”. However, higher interest rates were “working to establish a more sustainable balance between aggregate demand and supply in the economy”. The RBA added that “real incomes have stabilised and are expected to grow from here, which is expected to support growth in consumption later in the year”.

The RBA’s shift in stance, coupled with the removal of explicit warnings about further rate rises, has led to increased speculation about the future direction of interest rates. While the central bank remains cautious, the latest announcement has provided a glimmer of hope for mortgage holders across the nation. As the RBA continues to monitor the economic situation, all eyes will be on its next move.