The Reserve Bank of Australia has kept the official cash rate unchanged at 4.10% for August after inflation continued to drop closer to the RBA’s target range.
In what is its second pause in a row, the decision comes as a relief for many after the central bank increased interest rates by 400 basis points in 13 months.
This increased monthly home loan repayments by an estimated $1,217 per month on a 30-year $500,000 loan since the May 2022 cash rate rise, according to Canstar.
Due to leave his position on September 17, RBA governor Philip Lowe said while inflation in Australia is declining, it was still too high at 6%.
“Goods price inflation has eased, but the prices of many services are rising briskly. Rent inflation is also elevated. The central forecast is for CPI inflation to continue to decline, to be around 3.25% by the end of 2024 and to be back within the 2%–3% target range in late 2025,” Lowe said.
“The Australian economy is experiencing a period of below-trend growth, and this is expected to continue for a while. Household consumption growth is weak, as is dwelling investment. The central forecast is for GDP growth of around 1.75% over 2024 and a little above 2% over the following year.”
Mortgage broker Adam Rakowski (pictured above left), principal at Ortus Financial, said he breathed a “sigh of relief” when he heard the news.
“A pause won’t take the financial pain away, but on an emotional level it will give people some comfort that we’re at or very near the top.”
Will the pause change anything for borrowers?
Now that the announcement has been made, the focus now turns to explaining what it all means to brokers’ customers.
Aussie mortgage broker Joshua Athanasio (pictured above right) said he anticipated that borrowers would continue to enjoy stable mortgage interest rates.
“This stability provides reassurance to clients and keeps demand steady in the market,” Athanasio said. “While shifts in the market may occur due to various factors, such as economic conditions and lender competition, this provides positive signs of the marketing maintaining a steady trajectory.”
Athanasio said that fixed rate mortgages might “remain attractive” for clients seeking predictability and protection against future rate increases.
“Additionally, some lenders may continue to offer competitive variable rate products to maintain their market share given the unchanged cash rate,” he said.
Rakowski said he had seen many lenders increase rates for new clients despite the pause, which was “largely a byproduct” of the refinance rebates that were being “thrown around”.
He said that because of the bank’s dwindling market share, mortgage margins were under massive pressure and the banks were looking to get some back.
“The proprietary channels of the banks will continue to diminish, and I would expect broker share of wallet to hit 80% within 18 months,” Rakowski said. “As such I don’t see any short-term relief on rates from the banks, other than any relief provided by the RBA.”
In terms of what’s available to borrowers, Rakowski said he expected offset products to remain the most popular in the short to medium term.
“People are doing as best they can to maintain their offset balances to decrease the interest they’re paying and shorten the term of their loans.”
Has the cash rate peaked?
While the pause was welcomed by many, the question now turns to whether the cash rate has peaked or not.
With many in the industry forecasting one or two more rate rises, Rakowski said “we are very much at a tipping point”.
“I don’t think the cash rate has peaked but I am a glass half full person – I think we have only one increase to go.
“With the amount of people rolling off fixed rates in the second half of 2023, I think there is enough in-built tightening in the market to not warrant additional RBA increases. Hopefully, I am correct,” Rakowski said.
Athanasio said the current market was “dynamic and uncertain”, and while the cash rate remained unchanged, it was “difficult to predict” the peak.
“I’ll continue to closely monitor economic indicators and RBA announcements to provide the best form of education to my clients,” Athanasio said. “As market conditions evolve, we’ll adapt our strategies to ensure clients receive the most suitable mortgage options.”