RBA leaves interest rates on hold at 4.1 per cent after Philip Lowe’s last meeting as governor

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The Reserve Bank has kept interest rates on hold at 4.1 per cent for the third month straight, but has flagged further increases may be needed to ensure inflation remains under control.

It leaves the cash rate at its highest level since April 2012, and is the fourth time the RBA has paused its current rate-hiking cycle since it first began raising them in May 2022.

Tuesday’s board meeting was also the last chaired by RBA governor Philip Lowe, whose seven-year term ends next week.

Michele Bullock, the RBA’s current deputy governor, will begin in the role on September 18.

The RBA’s decision to pause rates for another month was in line with the expectations of the majority of economists and financial markets, after inflation cooled to 4.9 per cent in July — lower than what was forecast, but above the central bank’s 2-3 per cent target range.

In his final statement as RBA governor, Mr Lowe said although inflation was declining, additional rate increases may be needed to curb inflation.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will continue to depend upon the data and the evolving assessment of risks,” he said.

Mr Lowe said the central bank’s decision to leave rates unchanged in September came as higher interest rates were already having an impact on inflation, while also noting the uncertain economic outlook, including the ongoing global pressures stemming from China’s property market.

“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook,” he said.

The RBA still forecasts inflation to return to the target range of 2–3 per cent in “late 2025”, and expects unemployment will rise gradually to reach 4.5 per cent by late 2024, Mr Lowe added.

In his statement, the outgoing RBA governor also noted that the Australian economy was experiencing a period of slower growth and was “expected to continue for a while”.

“High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment,” Mr Lowe said.

Speaking in Question Time on Tuesday afternoon, Treasurer Jim Chalmers highlighted the RBA’s observation that the economy was slowing, and said it was his expectation that this would be reflected in National Accounts data being released on Wednesday.

AMP deputy chief economist Diana Mousina was not surprised the RBA kept rates on hold again.

“If you look across wages, growth, inflation, the employment data and the retail spending figures, there is no reason for the RBA to need to hike the cash rate, and that was the message from today’s meeting,” she said.

“There is still a risk of another rate rise, I’d probably say the risk is maybe 30 per cent chance of a rate rise in the next six months.

“But we do think that we are at the top end of the right hiking cycle, and that the next move will be down, and that decline in the cash rate will come sometime in 2024.”

Despite rates remaining on hold for another month, some experts are less sure, economist Chris Richardson said.

“The majority of economists, just, still think there’s one more rate rise out there. I don’t,” economist Chris Richardson said.

“I’m hopeful that there’s not another rate rise here, but I certainly do not see a rate cut anytime soon.

“Some good forecasters are starting to see that [rate cuts] as early as the opening months of 2024, unless China turns pretty bad.

“I wouldn’t see any rate cuts in Australia for more than a year.”

Pause gives borrowers a ‘bit of a breather’

The RBA’s decision to hold rates steady is a big relief for borrowers, including Hannah Irawan, who owns two properties with her husband.

Along with a mortgage for their home in Triabunna, an hour north of Hobart on Tasmania’s east coast, the couple also own an investment property closer to the state’s capital, which is currently occupied by family members and not being rented out.

“We’ve definitely noticed once those interest rates started flowing through around that Christmas, New Year’s time, that since then we’ve just been under the pump this whole year,” she said.

“Especially because those interest rates came one after the other, it was really noticeable by that fourth, fifth rise.

“We had to be really on top of our game to stay on top of it, but it’s been quite stressful at times to be thinking ahead and planning all the time.”

To make ends meet, Ms Irawan has taken on extra work to afford the repayments, but her industry is rife with short-term contracts, and she has considered changing careers to find full-time, permanent employment.

In the meantime, the couple managed to negotiate a better deal for their mortgages earlier in the year with their lender, and she says it has helped them manage their bills while interest rates remain high.

“It was close to a per cent on both mortgages … it was pretty close, and it was well worth asking the question, we’re really pleased that we did,” she said.

“We thought if we can save ourselves a couple of hundred bucks a month, it’s worth looking into … it definitely has put us at least in a better position.”

Now with rates on hold again, she believes it will give her and other home owners in a similar situation “a little bit of a breather”.

“I’d really like to hope that we can ride this out, and on the other side just be able to feel that we made the right decision to hold on,” Ms Irawan said.

“But it’s a bit of a wild ride.”

A final pause for Lowe’s swan song

Tuesday’s meeting was the final board meeting presided over by Philip Lowe, who has chaired a total of 78 RBA cash rate meetings in his time as governor.

During those meetings, he kept the cash rate on hold more times than it moved.

After stepping up to the role in mid-September 2016, Mr Lowe’s first years as governor saw the cash rate largely unchanged for two-and-a-half-years, despite stubbornly low inflation.

The board then agreed on several cuts of the cash rate in late 2019, before it was slashed to the record low of 0.1 per cent during the COVID-19 pandemic.

Since May last year, the board has increased the cash rate a dozen times, adding four per cent to the cash rate in just 13 months.

It was the first time during Mr Lowe’s tenure as RBA governor that he increased interest rates, which would go on to be the fastest rate-hiking cycle in the central bank’s history.

[GRAPH: Interest rates since 1990]

Looking back on Mr Lowe’s time as governor, economist Chris Richardson said there was a “reasonable chance” the RBA had done the right thing with interest rates in the past year and a half, despite its unpopularity with the general public.

“Mistakes were made, I say with the benefit of hindsight that we kept interest rates too high ahead of COVID,” he said.

“Then as we were coming out of COVID, we kept them too low for too long.

“Having said that, there’s a reasonable chance that what the Reserve Bank has done most recently, will have been right.”

Mr Lowe will finish at the RBA at the end of next week, before Michele Bullock steps into the role of governor on Monday, September 18.

In the short term, Ms Mousina believes there will be no changes to the RBA’s decision-making process under Ms Bullock’s leadership.

“But in 2024, we will see the new monetary policy board adopted, where you will have that governance board and then the separate monetary policy board, and also the RBA will be adopting the recommendations from the RBA review,” she said.

“They [the RBA review panel] wanted to see more debate within the board about the decision to either raise, hold or decrease the cash rate.

“So … we could see some more debate around the table, but I don’t think it will have too many fundamental implications for the actual setting of interest rates in Australia.”

Before his departure, Mr Lowe will reflect on his time at the RBA on Thursday in what is likely to be his last public appearance as governor.

Mr Richardson believed Mr Lowe had done his best as RBA governor in light of the economic headwinds he faced, but the time was right for Ms Bullock to take the lead in light of the central bank review.

“Yes, he made mistakes, I suspect most people would have made similar mistakes,” he said.

“He bust a gut … and he’s really done his best for Australia, so I genuinely feel bad for him.

“I also think it was time to move on and [for] someone to take up the reins for changing the institution.”

Ms Mousina agreed Mr Lowe did “a good job” managing the RBA and navigating it through the pandemic, in line with other central banks around the world.

“I think there were communication issues across all the major central banks and forecasting errors across all the major central banks, especially around their inflation projections,” she said.

“Both economists and central banks didn’t pick the huge surge in inflation that we were going to get.

“So while we can lay blame, I suppose, on the RBA or Phil Lowe, I don’t think that the RBA has done any worse at all compared to any other global central bank.

“I think it’s important to keep that in mind.”

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By business reporters Kate Ainsworth and Rachel Pupazzoni (Original ABC Article)