Interest rates stay on hold – for now

Interest rates will stay on hold this month following a meeting of the RBA Board today.

In a widely anticipated move, the announcement comes despite an uptick in the rate of inflation in August, which saw a rise from 4.9 percent in July to 5.2 percent.

All four of the big banks predicted the official rate to remain steady at 4.1 percent for the October meeting, although NAB has forecast that a further 0.25 percent increase was still an option, possibly next month. 

The board meeting was the first with Michele Bullock as governor, following the departure of Dr Philip Lowe last month. Dr Lowe was criticised for telling borrowers back in March 2021 that rates were ‘likely to remain at current levels’ until 2024. However, the RBA began raising the cash rate in May 2022 from 0.1 percent to 4.1 percent over a 12-month period in efforts to curb the rate of inflation.

Inflation peaked over the 12 months to December 2022 at 7.8 percent, well above target levels of between 2-3 percent.

CEO of the Real Estate Institute of NSW, Tim McKibbin, said despite the slight increase in inflation, it was important that rates remained on hold this month as the impact of earlier rate rises continues to play out.

“Until last week’s concerning CPI figures, which show the battle against inflation is far from over, it seemed a foregone conclusion that the new-look RBA Board would leave rates unchanged when it meets tomorrow,” he said. 

“REINSW believes it is appropriate for rates to remain steady for at least the short-term.”

CoreLogic Research director Tim Lawless said the rate of rising home values had slowed over the past quarter as cost of living pressures kept a firm grip on household budgets.

He noted that the Board had sought a balance between supply and demand in the economy.

“Clearly inflation remains high on the RBA’s risk radar,” he said. “Higher fuel and energy prices, alongside persistently high services and rental inflation have the potential to trigger another rate hike later this year.

“Logically, the RBA will be waiting to see September quarter inflation data, released the week ahead of the RBA’s November meeting.  With this in mind, the November meeting will be closely watched.”