Despite widespread expectation of a third cut this year, the RBA held its official cash rate at 3.85% today.
Australia’s central bank left the official cash rate unchanged today, surprising most experts and economists who had priced in another drop to ease pressure on home loan mortgage holders and stimulate spending in the economy.
The RBA noted in its update today that the main reason for the pause was the need to wait a little longer to confirm inflation was on track as wider economic conditions evolve.
‘With the cash rate 50 basis points lower than five months ago and wider economic conditions evolving broadly as expected, the Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis,’ explained the RBA.
‘Uncertainty in the world economy remains elevated. While the final scope of US tariffs and policy responses in other countries remains unknown.’
Australia’s economy, argue experts, needs another spending stimulus.
Most analysts had forecast a 25-basis-point cut today, also pointing to soft economic growth – just 0.2% in the March quarter and 1.3% year-on-year.
What’s more, inflation numbers remain stable and in the RBA’s preferred range – the headline inflation rate is currently 2.4% with underlying inflation sitting at 2.9%.
While both inflation figures remain broadly on track, many economists argued the RBA needed to move again to support a spending stimulus.
The cash rate has fallen from 4.35% at the start of the year, with back-to-back cuts in February and May bringing some relief to borrowers.
However, today’s decision signals a more cautious approach – for now, anyway.
Encouragingly, though, affordability has improved for many homeowners, with the number of mortgage holders at risk of financial stress falling.
According to Roy Morgan research, this figure dropped by 1.2 % to 26% between February and April.
The RBA’s next board meeting is scheduled for 12 August.
‘The [RBA] Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis.
‘It noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia,’ concluded the Central Bank.
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Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!