by Adrian Suljanovic
The decision to hold will come as a welcome relief for many borrowers, however the door is still open for a further hike next month.
The Reserve Bank of Australia (RBA) has decided to hold the official cash rate at 4.1 per cent.
This marks the second time the RBA has decided to pause the cash rate since it began hiking rates in May 2022, with the previous pause occurring in April of this year.
RBA governor Philip Lowe said in a statement following the decision: “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.”
“In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month. This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook.”
However, Mr Lowe stated: “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”
“In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the forecasts for inflation and the labour market.”
Executive director of aggregation group Connective, Mark Haron, commented that this pause in the rate-hiking cycle brings “some relief” to mortgagors.
The move comes amid a drop in inflation growth, but Mr Haron noted that the future of the rate cycle remains uncertain. Indeed, several economists have suggested that the cash rate will rise again next month.
Mr Haron said the changing rate environment highlights the “crucial role brokers play in guiding borrowers through these complex times and helping them make informed decisions”.
“As predicted, refinancing has spiked as fixed rates expire. Connective’s data shows a significant month-on-month increase, with a rise of 10 per cent in refinances to $6.05 billion in applications in June,” Mr Haron said.
“Brokers can capitalise on this spike in fixed rates expiring by analysing their data and conducting home loan health checks for clients nearing the end of their fixed-rate terms.
“Early communication, ideally 60–90 days prior to expiry date, is key to retaining the client.”
Similarly, the chief executive of aggregation group Finsure, Simon Bednar, stated brokers are ready to help borrowers deal with financial hardship as their fixed-rate loans expire this quarter.
“The fixed-rate home loan contracts of many thousands of borrowers who had locked in rates of around 2.0 per cent for the past two to three years will expire by the end of 2023, many in the September quarter, and these mortgage holders will need help,” Mr Bednar said.
“While they have avoided the pain people on variable rates have endured the past 14 months since the RBA started lifting the cash rate from its record low of 0.1 per cent, these borrowers may struggle to afford to repay their loans when suddenly confronted by mortgage interest rates of 6.0 per cent or more.”
CEO of aggregator Mortgage Choice, Anthony Waldron, echoed Mr Haron’s sentiment that today’s hold will be a relief for home owners.
“We’ve seen borrowers rushing to get a better deal during June, before many lenders stopped their cashback offers on 30 June,” he said.
Mr Waldron added that the surge in refinancing has seen 52 per cent of all loans submitted by Mortgage Choice brokers in June being refinance transactions.
What was anticipated before the decision?
The Commonwealth Bank of Australia (CBA) stood as the only major bank that correctly predicted a pause in the cash rate. However, CBA economist Stephen Wu did acknowledge that there was still a risk of a July rate hike due to rent and market services inflation showing signs of “accelerating or remaining elevated”.
“Overall we expect the RBA to pause its hiking cycle in July, leaving the cash rate on hold at 4.1 per cent,” he said earlier this week.
“We expect the RBA to raise the cash rate by 25 bps in August, to 4.35 per cent, to ensure inflation returns to the 2–3 per cent target in a timely manner.”
In addition, the ASX’s RBA Rate Indicator also suggested that the market had priced in a hold in the cash rate for July.
On 3 July, the RBA Rate Indicator (based on the market-determined prices in the ASX 30 Day Interbank Cash Rate Futures) showed the market had priced in an 84 per cent chance of “no change” and just a 16 per cent chance of an increase to 4.35 per cent.
The other three major banks (ANZ, Westpac, and NAB) all called a 25-bp hike to bring the cash rate to 4.35 per cent.