The Reserve Bank of Australia has kept the cash rate hold at 4.35 per cent. ·Source: AAP
The Reserve Bank of Australia (RBA) has kept the cash rate on hold at a 12-year high of 4.35 per cent. Experts are warning the central bank risks inflicting “further, unnecessary pain” on Aussies and small businesses if it keeps interest rates too high for too long.
The RBA board said underlying inflation remained "too high" and reiterated it was "not ruling anything in or out". But RBA governor Michele Bullock said a rate cut would not be on the agenda in the "near term".
The RBA decision to hold fire on interest rates was widely predicted by economists, after inflation data was in largely line with expectations. The Consumer Price Index (CPI) rose 1 per cent in the June quarter and 3.8 per cent annually, up from 3.6 per cent in the March quarter.
CreditorWatch chief economist Anneke Thompson said its data had pointed to a “significant cooling” in business activity, with the average value of invoices held by businesses dropping 49.9 per cent over the year to June.
“Holding the cash rate at this peak for too long risks causing further, unnecessary pain on many small businesses, particularly in the construction, retail and hospitality sectors,” Thompson said.
Leading economist and Yahoo Finance contributor Stephen Koukoulas said holding interest rates at their current high could "further depress" Australia's economy and "condemn tens of thousands of people to unemployment" with the next RBA meeting not until September 24.
“Seven weeks mightn't sound a lot but when the wheels are falling off the economy, businesses are faltering, markets are spewing, unemployment is rising, it is an eternity,” he said.
Do you have a story to share? Contact tamika.seeto@yahooinc.com
The unemployment rate edged higher to 4.1 per cent in June, up from 4 per cent the previous month, despite the creation of about 50,000 jobs.
PropTrack director economist research Cameron Kusher said despite the rate of growth in home prices slowing, more properties were being listed for sale and sales volumes remained “robust”.
“Stable interest rates are likely to support vendor and purchaser confidence as we head into the busier spring period,” Kusher said.
Homeowners bearing the brunt
Mortgage repayments have skyrocketed by about $1,562 per month on a $600,000 loan since the RBA started hiking rates in May 2022.
More than 1.6 million Aussies are currently facing mortgage stress, Roy Morgan data found, up from 88,000 the month period.
AMP chief economist Shane Oliver believes mortgage holders are bearing too much of the brunt from the RBA’s attempts to curb inflation.
“Tighter fiscal policy in the form of tax hikes and spending cuts or maybe a 1 per cent super levy on everyone would better spread the burden,” Oliver said.
“But that would mean politicians would have to do things that are politically unpopular and history shows that they cannot be relied upon to do that.”
Why is the RBA holding interest rates?
The RBA board said inflation had "fallen substantially" since its peak in 2022 but was "still some way above" its 2 to 3 per cent target range, with inflation "proving persistent".
The board said the economic outlook remained "highly uncertain" and the path to returning inflation to target had been "slow and bumpy".
"Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out," the board said.
"Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range."
The bank now forecasts inflation to return to the target range in late 2025 and approach the midpoint in 2026. This represents a slightly slower return to target than forecast in May.
When will interest rates come down?
Bullock has told borrowers not to expect an interest rate cut in the "near-term", which the board considers as meaning the next six months.
"Based on what I know today and what the board knows today, what we can say is that a near-term reduction in the cash rate doesn’t align with the board’s current thinking," she said.
"I understand that this is not what people want to hear. I know there are many households and small businesses that are struggling with interest rates where they are. Many people are doing it tough and we're very conscious of that."
