The Reserve Bank of Australia has made a shock decision to leave interest rates unchanged in July, despite widespread predictions they would deliver back-to-back cuts.
The RBA held the official cash rate at 3.85% on Tuesday, citing uncertainty in the global economy and "slightly stronger than expected" inflation.
The move leaves home loan borrowers out in the cold this winter, with many having expected to see some mortgage relief following strong market consensus for a July cut.
The RBA has left the cash rate unchanged in July. Picture: NewsWire / Nikki Short
In her post meeting media conference, RBA governor Michele Bullock said the board had decided to "wait a few weeks" to confirm the economy was tracking in line with expectations.
"By our next meeting in five weeks, we will have the June quarter [Consumer Price Index], another labour market reading, further information about international developments and an updated set of forecasts," Ms Bullock said.
"What the decision today was about was about timing rather than direction."
Property momentum to take a hit
The wait-and-see approach comes despite recent data showing inflation is easing and economic growth is weaker than anticipated.
PropTrack senior economist Anne Flaherty said most forecasters anticipate further cuts to the cash rate before the end of the year.
That's expected to spur activity in the housing market, as has been seen by the two interest rate cuts delivered in February and May.
Though Ms Flaherty said Tuesday's surprise decision may take some wind out of the sails.
“Today’s decision to hold may slow the pace of [property] price growth seen in the months following the February and May cuts," Ms Flaherty said.
“Nationally, prices are up 3.2% since the start of the year, adding around $26,000 to the median price of a home.
“For many, affordability constraints continue to weigh heavily, as many households grapple with stretched budgets.”
National home values reached a new record high in June according to the latest PropTrack Home Price Index.
What the RBA wants to see
The RBA's decision to leave interest rates on hold comes despite a further easing of inflation in May.
Monthly trimmed mean inflation – the central bank’s preferred measure of inflation – rose 2.4% over the year to May, down from 2.8% in April and well within the RBA's inflation target of 2-3%.
But the central bank is waiting to see the more reliable quarterly inflation data, set for release at the end of July, as well as the impact of US President Donald Trump's new global trade tariffs, scheduled to come into effect at the start of August.
Mortgage Choice chief executive Anthony Waldron said if the June quarter Consumer Price Index (CPI) shows inflation remains within the target band, a cut could be expected in August.
Anthony Waldron, CEO of Mortgage Choice
"Today's decision doesn’t mean further cuts are off the table. There are four monetary policy board meetings still to go this year, so rates could drop further," he said.
Mr Waldron said the tight labour market would have been another factor behind the RBA’s decision to keep the cash rate on hold because of the upward pressure low unemployment can have on inflation.
Borrowers opt for variable loans
With additional rate cuts expected in the months ahead, borrowers are overwhelmingly choosing variable rate home loans over fixed.
“We've seen lenders announce reductions to some of their fixed-rate home loan products over the last month, but borrowers haven’t been tempted to lock in their rates," Mr Waldron said.
"Mortgage Choice submission data reveals that demand for fixed-rate home loans continues to fall, with just 1% of submissions in June having a fixed component.”
Borrowers are opting for variable rate home loans in anticipation of more interest rate cuts. Picture: Getty
Mr Waldron also said the current market is continuing to fuel much-needed investor activity.
"The share of loans to investors has climbed to the highest proportion we’ve seen in three years, with 30% of loans submitted in June being for investment loans," he said.
“If you’re in the market for your first home or an investment property, chat to a mortgage broker to understand how future rate cuts could increase your borrowing power.”
English (US) · 