Interest rates may have peaked, as RBA keeps cash rate on hold
BREAKING NEWS: The RBA has responded to the shifting economic landscape by keeping interest rates on hold at its June meeting.
An interest rate rise that seemed a safe bet just a few weeks ago has been kicked to the kerb by the Reserve Bank of Australia (RBA) until at least their next meeting in August.
The reprieve for mortgage holders owed much to recent economic developments, including this week’s vague but hopeful agreement to open the Straits of Hormuz, the unemployment rate increasing to 4.5 per cent, and inflation showing signs of moderating.
The RBA claims to pay little heed to property prices but would also have noted the fact prices are falling in the country’s two biggest cities and the pace of growth is slowing elsewhere.
Combined, it was enough for the RBA to hold off on a fourth interest rate rise for the year and leave the official cash rate at 4.35 per cent on Tuesday (16 June).
The decision ultimately came as little surprise but more tellingly, the prospect of further rate hikes that had seemed unavoidable is now receding.
Oliver Hume Property Group’s Chief Economist, Matt Bell, said the recent run of softer than expected inflation and growth data combined with a rising unemployment rate has supported the case for a pause.
“The big change in recent weeks has been the widely held expectation of at least one more rate hike being a certainty - and possibly two - disappearing.
“Past today’s decision to hold, markets now only have a roughly 60 per cent chance of one further rate hike priced in, which is a much more doveish view than just three weeks ago.”
Mr Bell said there is a real possibility the nation is at the peak of the rate cycle, with implications for the property market
“We’ve always held that it’s the rates outlook that has the biggest impact on our (property) views for 2026 and into 2027.
“The fundamentals across most markets don’t change quickly and remain strong.
“Demand exceeds supply in most markets and the Federal Budget impacts on residential markets have been overblown.
“We are seeing some weakness in residential markets in the June quarter, but that’s largely due to the delivery of rate hikes and the expectation of more.
“Lower consumer sentiment due to the budget changes is playing some part, but once the rates outlook stabilises and consumers feel the next move is down, dwelling price growth will recover.”
With an eye on the commercial property market, Knight Frank’s Chief Economist Ben Burston said the RBA’s decision to hold rates steady is a welcome reprieve for property markets and signals the need for more time to assess the impact of the three earlier rate rises and the strength of the inflation pulse still feeding through from higher fuel prices.
“There is now clear evidence that the economy is now cooling, given weak consumer and business confidence and falling house prices in Sydney and Melbourne, and the RBA will be wary not to overplay their hand.
“While investors will feel that they aren’t out of the woods just yet, they will take heart from shifting market expectations which point to a lower probability of further rises.
“Meanwhile, leasing market fundamentals remain favourable in most markets with rental growth continuing to support investment returns and attract capital to the main commercial sectors, so the latest run of rate rises has been far less disruptive than in 2023.”
RBA still concerned about inflation
The RBA Board was unanimous in its decision to keep rates on hold but its rhetoric suggests it is not entirely convinced the weight has shifted towards a rate cutting cycle.
The Monetary Policy Decision noted that inflation is high and inflationary pressures had not necessarily abated and are actually worse than earlier in the year when the RBA was lifting rates.
“The latest data shows that headline and underlying inflation are still too high.
“Oil prices have eased in recent weeks, although energy and most related commodity prices remain higher than they were prior to the conflict in the Middle East.
“There are signs that some firms experiencing cost pressures are increasing the prices of their goods and services and others are looking to do so.
“Short-term measures of inflation expectations have eased but remain higher than earlier in the year.”
Ultimately, the uncertainties plaguing the global economy proved worthy of taking a wait-and-see approach.
“Resolution of the conflict in the Middle East is at an early stage, and there are plausible scenarios where inflation is higher and activity lower than envisaged under the May baseline forecasts,” the RBA Board noted.
“Global oil supply issues will take some time to resolve, maintaining upward pressure on global energy prices and inflation (and) at the same time, a period of prolonged uncertainty may also cause growth to be lower in Australia’s major trading partners and in Australia.”
