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The Reserve Bank of Australia (RBA) has released its final winter cash rate call for 2023.
Following the decision to hold the cash rate at 4.10 per cent in July, the central bank has declared that the cash rate will remain at 4.10 per cent for August.
It’s the second consecutive month the RBA has decided to keep rates on hold, and should boost buyer confidence in the lead-up to the Spring selling season, according to one real estate group.
LJ Hooker head of research, Mathew Tiller, has acknowledged that inflation dropping faster than expected means the RBA is remaining cautious about the impact of increased rates on the economy.
Calling the pause “another boost to buyer demand”, Mr Tiller said it would give those with pre-approval “the confidence to act without incurring more costs or worrying about the serviceability of their home loan”.
“It allows transactions to go ahead without the stop-and-start of buyers going back to their lender and renegotiating which is what was happening when we were seeing monthly increases.”
For PropTrack senior economist Eleanor Creagh, the decision of the Reserve Bank to hold steady comes off the back of subsiding momentum in inflation and consumer spending, which in turn has eased pressure off interest rates.
“This allows more time to assess the economic outlook as [the RBA] tries to engineer a soft landing whilst returning inflation to target.”
“The substantial tightening already pushed through is weighing on economic activity, consumer spending is slowing, while business surveys indicate weaker conditions are expected in the coming months as economic activity slows,” she indicated, having also acknowledged that “the full effect of the higher interest rates is yet to be felt.”
The latest decision by the RBA comes off the back of “increasingly cooling economic activity”, as noted by CreditorWatch chief economist Anneke Thompson.
B2B trade payment defaults, as flagged in CreditorWatch’s June Business Risk Index, have been sitting at record high levels, meaning a record number of late payment defaults were lodged by businesses against other businesses, “highlighting just how tight cash flow is for some companies”.
“It appears that savings levels of both consumers and businesses are now having a considerable impact on consumers’ ability to spend on discretionary items and for some businesses to be able to pay their bills on time,” she flagged.
As the unemployment rate likely trends upwards over the second half of 2023, Ms Thompson said inflationary pressure and wage pressure should lessen, hinting at the end of the hiking cycle.
From Mr Tiller though, there was a slight warning: “We need to see the decline in inflation continue at the same pace, if it remains sticky then there is a chance they will increase interest rates again – so, we may not be at the end of the cycle just yet.”
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