Hold here to stay? RBA keeps cash rate tight with another pause in September

For the third month in a row, the Reserve Bank of Australia (RBA) held the official cash rate at 4.10% – its highest level since 2012. The extended pause brings more relief to home loan borrowers hammered by a record-breaking rate cycle since May 2022. 

Today’s decision also marks the last from RBA governor Philip Lowe, whose term ends on 17 September. Deputy governor Michele Bullock will take his place. 

In a post-meeting statement, Lowe explained that the tight monetary policy has so far worked in the RBA’s favour. “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,” explained Lowe.

“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.”

Inflation has been slowly dying for a while, but it may finally be on its way out. The monthly Consumer Price Index for July clocked in at 4.9% – still too high, but much lower than previous months. 

Economists are now more optimistic about the cash rate remaining where it is, although NAB still suspects there could be another 0.25% rate hike by December 2023.

“I don’t think there’s another rate increase coming,” explains Mozo banking expert Peter Marshall.

“The banks’ activities suggest they don’t think there’ll be any more increases, and by that, I mean CommBank, Macquarie, and ING are cutting fixed rate home loans. To me, that says they formed a view that rates are not going any higher.”

Indeed, if the rate pause continues, fixed home loans are likely to drop first, hard, and fast before the New Year, while variable home loans will hover about where they are until interest rates unwind in mid to late 2024.  

That being said, some lenders have still made out of cycle rate hikes, proving the home loan rate war is well and truly over.

Westpac, CommBank, and ANZ reckon we’ve seen the last of rate hikes for a long while. Inflation is tumbling to a halt, household spending has plummeted, and unemployment is creeping up – all suggesting monetary policy is tight enough.

“We’re still in a tightening phase, and the current cash rate is seen as restrictive,” says Marshall. “That is expected to keep pressure on household budgets.”

Indeed, a fall in retail spending suggests Australians with mortgages are diverting extra cash to their home loan budget. Mortgage repayments often take priority over anything else, so while most borrowers are absorbing the rate hikes well, tightening is still flowing through to the rest of the economy – further killing inflation.

In fact, now the next great speculation hinges on when the first cash rate cut will happen. Westpac, NAB, and CommBank all point to September 2024 – if inflation behaves, the RBA will step rates back 0.25%. Until then, interest rates will stay at 4.10%.

However, rising mortgage stress has also made many borrowers wary of betting on the RBA. After all, similar talk of a rate hold followed the RBA pause in April, yet the central bank stomped the market with two more hikes. So when can Aussies be sure the RBA won’t raise rates again?

“It’s probably not going to be until the first quarter of next year that we can actually feel comfortable that the rate cycle is over,” says Marshall.

“It will take a bit longer to ensure that the key economic indicators are going in the right direction. But once that happens, people can stop worrying about increasing prices on their mortgages.”

Expect further cuts to fixed home loans as banks become more comfortable with the interest rate hold. Longer terms of 4 to 5 years will likely drop first, followed by shorter terms as we inch closer to the first RBA rate cut.

“There are reasons to be optimistic if you’re a home buyer at the moment,” says Marshall. “Just hold on a little longer, and fixed rates will become more favourable.”

However, despite the RBA rate hold, variable home loans still saw plenty of hikes in July and August, so now is not the time to be complacent with your home loan. If your lender has raised its home loan interest rates and you’re looking for a better deal, negotiating – and refinancing – remain important tools in the borrower’s bag.

We’ll track which lenders have changed rates as word comes in. To see how your lender compares, visit our home loan comparison page.