Homebuyers are being warned to brace for more mortgage misery in the months to come despite being spared an 11th interest rate rise in row.
The Reserve Bank on Tuesday left interest rates unchanged but has given itself wiggle room to hike again if needed.
The decision will give mortgage holders breathing space after enduring 10 consecutive interest rate increases, adding hundreds of dollars to the cost of servicing a mortgage.
While the RBA kept interest rates on hold at 3.6 per cent, the hiking cycle might not be over after governor Philip Lowe flagged that further tightening of monetary policy could well be needed.
“The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty,” he said.
Dr Lowe also gave a nod to banking instability in the US and Sweden, which he said was expected to lead to tighter credit conditions and weaker economic growth despite Australian banks’ strength.
While the RBA opted to keep interest rates on hold to allow it to observe the impacts of its handiwork, another increase was firmly on the cards.
EY chief economist Cherelle Murphy said Dr Lowe’s accompanying statement pointed to a “hawkish pause” and reflected the non-conclusive data observed since the last meeting.
“In other words, it’s pausing for now, but it’s certainly not saying ‘relax, we’re done’,” she said.
Ms Murphy said the RBA dialled back its conviction about future rate rises in April, switching to indicating further tightening of monetary policy “may well” be needed from “will” be needed in its March statement.
She added the central bank was likely reassured by weakening inflation – which sank from 7.4 per cent annual growth in January to 6.8 per cent in the 12 months to February – but the tight labour market was likely still cause for concern.
Ms Murphy said spiking oil prices driven by OPEC’s decision to cut production could also push inflation higher and a worryingly early turnaround in home prices might weigh on the next decision.
Quarterly inflation data, due on April 26, will be the key piece of data for the RBA to digest before its next meeting in May.
Finance Minister Katy Gallagher said the government expected inflation to come down during the next 12 to 18 months and it would seek to reduce inflation pressures in the May budget.
“We’re absolutely focused on not making the inflation problem worse … we are looking at spending restraint,” she said.
Shadow treasurer Angus Taylor said the government could be doing a lot more to help the RBA return inflation back to within its two-three per cent target band.
“This government’s talking a big game on restraint, but we haven’t seen it,” he said.
Mr Taylor said families and businesses competed with the government to borrow money, which drove up interest rates and inflicted more pain on Australian households.
“We want to see a budget coming up in May where the government shows spending restraint and avoids the usual Labor temptation of adding taxes,” he said.
© AAP 2023
