RBA Governor Lowe bows out leaving interest rates unchanged

The Reserve Bank Governor Philip Lowe has used his final monthly meeting to leave interest rates on hold for a third successive month.

The RBA Board decided to leave the cash rate target unchanged at 4.10 per cent, pointing to subsiding inflation, broad economic uncertainty and earlier interest rate hikes still working their way through the economy.

The decision to hold came as little surprise, with all but one of 38 panellists from Finder’s RBA Cash Rate Survey believing the RBA would hold the cash rate steady in September.

Mr Lowe's final Monetary Policy Decision said the Australian economy is experiencing a period of below-trend growth that is expected to continue for a while.

“High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment,” he said. 

“Notwithstanding this, conditions in the labour market remain tight, although they have eased a little.

“Given that the economy and employment are forecast to grow below trend, the unemployment rate is expected to rise gradually to around 4.5 per cent late next year.

“Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.”

He added that there is increased uncertainty around the outlook for the Chinese economy due to ongoing stresses in the property market there.

Unlike previous monthly rates announcements, Mr Lowe on Tuesday (5 September) issued a softer than usual notice that more rate hikes may be necessary to curb inflation.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks,” he said, tempering his usual bullish sentiment with the ‘but’ on this occasion.

Little prospect of a rate cut

The rate hold is relatively good news for borrowers but the prospects of an imminent rate cut remain slim.

Economist Saul Eslake, of Corinna Economic Advisory, said the latest monthly CPI data for July show a further and welcome decline in headline inflation to 4.9 per cent, the lowest since February 2022, but still well above the RBA’s target range of 2 to 3 per cent.

“Underlying inflation also fell, but only to 5.6 per cent, even further above the target range, so there’s no need to tighten policy further but nor any reason to anticipate any reductions in interest rates any time soon,” he said.

Former Labor Government trade minister, Craig Emerson, of Emerson Economics, concurred, saying, “The RBA will consider it too early to ease and will maintain its pause position.”

David Robertson, Chief Economist, Bendigo Bank was less optimistic, saying a rate hike was more likely than a rate in coming months.

“The RBA appears comfortable holding the cash rate at 4.1 per cent ahead of the next quarterly CPI report out on 25 October 25.

“Another hike to 4.35 per cent remains the risk, as core services inflation remains stubbornly high, but not until November at the earliest.”

Many believe the cash rate will hold at 4.1 per cent now until the new year and will start to ease back, back to 3 percentage points range by the end of 2024 according to CBA’s Senior Economist Belinda Allen and Economist Stephen Wu. NAB economists believe there will likely be one more hike this year and Westpac’s Chief Economist Bill Evans believes we won’t see rate cuts till this time next year.

What does the RBA decision mean for property market?

The 29.2 per cent of borrowers deemed to be in mortgage stress remains notably lower than the levels witnessed during the financial turmoil of a decade or more ago when mortgage holders in stress reached a peak of 35.6 per cent in mid-2008.

But more concerning is the surge in the number of mortgage holders considered extremely at risk, which has now climbed to 1,017,000 (20.3 per cent). This figure significantly exceeds the long-term average of 15.4 per cent over the last 15 years and reflects an increase of more than 470,000 mortgage holders compared to a year ago, marking a 7.6 per cent rise.

Helen Avis, Director of Finance at Specialist Mortgage, said borrowers were refinancing in record numbers and increasingly turning towards mortgage brokers in an attempt to alleviate financial pressures.

Ms Avis said she expected the RBA to hold off on any further moves for several months as the current raft of increases gradually take effect.

“The majority of home price falls recorded last year have been reversed in 2023, with August marking the eight consecutive month of national home price growth. Strong demand and limited supply have offset the impact of rate rises that continued this year.

Eleanor Creagh, PropTrack Senior Economist, said subsiding momentum in inflation and consumer spending have eased pressure on the RBA to continue lifting interest rates as it tries to avoid a recession while taming inflation.

“The decision by the Reserve Bank to continue holding the cash rate steady in September is likely to maintain both buyer and seller confidence as the spring selling season begins, with home prices likely to continue lifting in the period ahead.

“The majority of home price falls recorded last year have been reversed in 2023, with August marking the eight consecutive month of national home price growth.

“Strong demand and limited supply have offset the impact of rate rises that continued this year.”

Rich Harvey, CEO, Propertybuyer, said as overstretched investors sell it could be a good time to enter the property market.

“Inflation is decreasing slowly as households are finally feeling the real pinch of significantly higher mortgage repayments, so there’s likely to be many discussions around the dinner table as to how households will adjust spending patterns to cope with higher rates.

“Discretionary spending is down and likely to stay low for next six months, and likely to see some investors offload investment properties if the drag on their budget is too strong.

“All this provides good buying opportunities for savvy buyers with financial means to secure more property,” Mr Harvey said.

The next RBA interest rates decision will be handed down by the first female governor of the institution, Michele Bullock.

Additional reporting by Sasha Bennett