RBA deliver pre-Easter treat to mortgage holders

At its monthly meeting on Tuesday, the RBA board left the official cash rate unchanged at 3.6%, after seeing evidence that its aggression had finally forced a peak in inflation.

But it warned further action may be necessary in the future.

“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,” RBA governor Philip Lowe said.

“The board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target.”

The RBA’s outlook for inflation is for declines throughout this year and next, before reaching 3% in mid-2025.

“Medium-term inflation expectations remain well anchored, and it is important that this remains the case,” Mr Lowe said.

PropTrack senior economist Eleanor Creagh said the RBA will now sit tight to monitor the continued impact of its significant tightening.

“Data on employment, inflation, retail trade, and consumer and business confidence were all important in informing today’s decision,” Ms Creagh said.

“The board has weighed that flow of data against an assessment of the outlook. It’s clear that outlook shows sufficient weakening.”

While the pause will be welcome news for borrowers, Ms Creagh said there will be more hip pocket pain to come.

“Both higher interest rates and inflation will maintain pressure on household budgets and business profitability in the coming months,” she said.

“It takes time for higher interest rates to fully impact household cash flows. Plus, so many borrowers took advantage of record low fixed rate mortgages through Covid and they’re yet to feel the full impact of rate rises.”

That so-called ‘mortgage cliff’ – the period when those Aussies on fixed rate loans roll off onto a variable interest rate – will put further downward pressure on the economy.

Mortgage Choice chief executive officer Anthony Waldron said any Australian currently on a fixed rate mortgage should urgently seek professional advice.

And even those on a variable rate home loan, or in the process of buying now, owe it to themselves to ensure they’re not paying too much, Mr Waldron added.

“I urge all borrowers and buyers to speak to their mortgage broker before applying for their home loan to understand how recent changes in the rate environment have affected their situation,” he said.

House market bounce-back firms

Skyrocketing interest rates throughout the second half of 2022 saw housing markets rapidly rebalance after the Covid-induced boom.

Prices fell for nine months in most parts of the country, but that trend looks to have reversed, Ms Creagh said.

“Price falls eased towards the end of last year and are now moving higher again. Home prices at a national level moved higher in March by a modest 0.13% and are now 0.49% higher this year.”

Ms Creagh said a limited supply of properties available for sale combined with elevated buyer demand is putting a floor beneath prices.

“A significant reduction in borrowing capacities and deterioration in affordability are being offset by the strong rebound in immigration, and tight rental markets, which are seeing demand for homes remain strong.

“And now the RBA has paused its tightening cycle, home prices will likely continue to stabilise as some of the uncertainty buyers have experienced with respect to borrowing capacities and mortgage servicing costs reduces.

“And if stock levels remain constrained the bounce is likely to continue to firm.”