RBA keeps interest rates on hold at 4.35 per cent

The Reserve Bank has left interest rates on hold amid signs that growth in the economy has dramatically slowed down following 13 interest rate rises since May 2022.

The decision to keep rates on hold was widely anticipated, with few economists expecting another rate hike. However, many are predicting the RBA will start cutting interest rates in the second half of this year as inflation continues to moderate.

The cash rate remains at 4.35 per cent.

Based on an average variable rate of 6.39 per cent for a loan over 25 years, the impact of 13 rate hikes since May 2022 has taken monthly repayments on a $500,000 loan up by $1,210 a month, and those on a $750,000 loan up by $1,815 a month.

If the RBA does cut the cash rate later this year, and the banks pass this rate cut on in full, then someone with a $500,000 mortgage with 25 years remaining would see their monthly repayments go down by $76 in the first cut and by $152 if there were two cuts.

While there is no certainty about when interest rates may fall, there are fears the impact of previous rate cuts may slow down the economy more than anticipated.

The Reserve Bank, the federal government and Treasury have spent much of the past two years focused on fighting inflation, but now the challenge is to ensure that growth doesn’t slow down so forcefully that it tips Australia into a recession.

On a per person basis – that is accounting for population growth - the economy has plunged deeper into a per-person recession. 

In its statement today explaining why the board decided to leave the cash rate unchanged, the RBA noted "inflation continues to moderate but remains high".

It said "while there are encouraging signs that inflation is moderating, the economic outlook remains uncertain" and the "Board needs to be confident that inflation is moving sustainably towards the target range".

To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

It said the central bank's forecasts were for inflation to return to the target range of 2 to 3 per cent in 2025, and to the midpoint in 2026.

"The path of interest rates that will best ensure that inflation returns to target in a reasonable time frame remains uncertain and the Board is not ruling anything in or out."

"The Board will rely upon the data and the evolving assessment of risks," it said, adding that it "remains resolute in its determination to return inflation to target".