Experts weigh in on the RBA cash rate hold

The goal is to keep inflation at bay, said the RBA. With CPI figures 3.8 per cent higher than the same time last year, intervention is necessary to keep figures down. The RBA believes inflation will begin to trend downwards in the coming year.

“Underlying inflation is forecast to return to the target range of 2–3 per cent in late 2025 and approach the midpoint in 2026. This is a slightly slower return to target than forecast in May and is due to greater inflationary pressures in the economy,” said the RBA.

“Ongoing strength in the labour market, persistent inflation and still-high growth of both labour and non-labour costs suggest there are upside risks to inflation. At the same time, there is a risk that household consumption and economic activity pick up more slowly than expected. The unemployment rate is rising gradually, many households and businesses are under pressure and the lagged effects of monetary policy are uncertain. Conditions in the labour market could deteriorate by more than expected.”

In reaction to the decision, experts are weighing in, providing insight into the rate hold and what the decision means for the future of the economy.

Treasurer Jim Chalmers

“Today’s welcome decision from the Reserve Bank comes at a time of moderating underlying inflation, market volatility and global economic uncertainty. Australians are doing it tough already, the last thing they needed was more cost-of-living pressure,” he said.

“It’s a decision which recognises the progress we’ve made on inflation, the softness in our economy, and very substantial global pressures. We’ve seen significant volatility in international markets in recent days and our own markets have been impacted as a result.

“Having rates on hold since November last year provides some extra certainty to mortgage holders and small businesses who are already under pressure. The RBA Board’s statement forecasts that headline inflation is expected to dip below 3 per cent in the next year due to the Government’s cost of living measures. We have made encouraging progress in the fight against inflation and we are confident Australia will see a soft landing for our economy, but this volatility around the world is a warning against complacency.”

Tim Lawless, research director at CoreLogic APAC

“With the quarterly rate of core inflation easing back to 0.8 per cent in the June quarter, in line with the RBA’s May forecast and down from 1.0 per cent in the March quarter, much of the pressure has come off the RBA to lift rates. A slowdown in job growth and a subtle lift in the unemployment rate were also at play in keeping rates on hold,” said Lawless.

“While stable rates and lower inflation should help to lift consumer sentiment, which has historically shown a close relationship with property sales, the August hold decision may not be enough to see that rise in consumer sentiment flow through to housing market activity. Recent growth in property prices has had more to do with low supply, tight rental conditions and demographic factors than sentiment through the housing upswing to date.

“While the RBA Board is leaving their options open, if the inflation trajectory continues to ease, the next movement in interest rates should be downwards. Whether this will be enough to revitalise the housing growth cycle is open for debate. There is a possibility that affordability pressures and, eventually, a housing supply response, will keep a lid on price growth even as rates come down.

“The timing of a rate cut remains uncertain and dependent on the flow of data, especially inflation and labour force outcomes. The earliest forecasts have a rate cut pencilled in for November, while market pricing is pointing to February next year.”

Callam Pickering, Indeed APAC economist

“Monetary policy continues to be data dependent. Although central banks around the world are shifting towards cutting rates, it would be a mistake to believe that the inflation battle in Australia is already won. Overall, monetary policy appears to be working but perhaps not as quickly as the RBA would like. Inflation remains uncomfortably high and there are a couple of boxes that the RBA would like to see ticked before they can be confident in returning inflation back to target,” said Pickering.

“First, service sector and non-tradables inflation needs to come down a lot to be consistent long-term with the RBA’s 2–3 per cent inflation target. Australia’s inflation problem is increasingly homegrown and less dependent on global economic developments. Inflation is proving sticky in these areas and there is a risk that these types of price gains become entrenched in expectations.

“Second, there is a clear disconnect between wage growth and productivity growth that may prove problematic for inflation going forward. Annual wage growth remains too high given Australia’s pitiful productivity performance recently. Ideally you’d want to see productivity growth improve significantly and quickly. Neither sticky inflation nor poor productivity growth may stop inflation returning to the RBA’s inflation target but both will be pivotal to determining whether inflation remains there. Consistently achieving the RBA’s inflation target is awfully difficult unless these issues are resolved.”

Anneke Thompson, chief economist at CreditorWatch

“This RBA board will be reasonably comfortable that the cash rate at 4.35 per cent is having the required effect of cooling demand. Demand has certainly cooled significantly in areas of discretionary retail and the café and restaurant sector. Retail trade quarterly volume data showed that the volume of retail goods sold per capita has fallen every quarter for eight quarters in a row,” Thompson said.

“Looking forward, in all likelihood, the RBA will begin to cut the cash rate before inflation gets back within the target band. This is because of the known lag effect of tightening monetary policy, and it will be very keen to not undo the remarkable gains in employment and the labour force over the last few years.”

Home Loan Experts CEO Alan Hemmings

“Although the RBA held the cash rate, the board is still watching very closely what happens in the economy. Even though inflation edged lower, it is still well above the preferred band of 2–3 per cent. There are concerns about increasing costs across a range of products and services. Housing costs continue to increase and this is putting upward pressure on inflation. The Reserve Bank will want to see some ongoing downward movement in inflation to make sure it does not have to increase the cash rate again,” he said.

“For customers, the outcome is positive, although some caution is still warranted. It may be that we are at the top of the interest-rate cycle, but although this means no increases to mortgage repayments, inflation still means other costs are rising. As always, we ask existing customers to continue to review their home loan rates and speak to their broker, as better interest rates may be available.

“With costs increasing, if clients are struggling to meet their repayments it is best they be on the front foot and talk to their broker, who can guide them on what to do. For clients looking to get into property, speaking to a broker to maximise borrowing potential and get guidance on first home buyer schemes is vital in this market.”

Krishna Bhimavarapu, APAC economist at State Street Global Advisors

“The RBA remained in a hawkish hold and made a dovish pivot today, as it now foresees headline CPI declining to 3.0 per cent y/y by December 2024 (down from 3.8 per cent), in line with our longstanding view. Most importantly, the Bank now foresees higher unemployment rate, also in line with the risks that we fear. The Bank balanced these by nudging-up the trimmed mean inflation,” said Bhimavarapu.

“The RBA also seems to be uninterested in cutting rates without any clear and substantial progress, as it assumed no cuts in their updated forecasts. We think the outcome is well balanced but, nonetheless, we maintain our forecast of the first rate cut in November this year with the same risks even after the meeting today.”

[Related: RBA holds; Inflation path has been ‘slow and bumpy’]

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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