RBA holds steady: August cash rate unchanged amid economic uncertainties

The Reserve Bank of Australia (RBA) has announced its final winter cash rate decision for 2023, opting to maintain the cash rate at 4.10 per cent for August. This decision follows the same rate hold in July, marking the second consecutive month the RBA has decided to keep rates on hold.

The decision is expected to boost buyer confidence as we approach the Spring selling season, according to a leading real estate group. Mathew Tiller, head of research at LJ Hooker, has noted that inflation is dropping faster than anticipated, leading the RBA to exercise caution regarding the impact of increased rates on the economy.

Tiller referred to the pause as “another boost to buyer demand”, suggesting it would give those with pre-approval “the confidence to act without incurring more costs or worrying about the serviceability of their home loan”. He added, “It allows transactions to go ahead without the stop-and-start of buyers going back to their lender and renegotiating which is what was happening when we were seeing monthly increases.”

Eleanor Creagh, senior economist at PropTrack, echoed these sentiments. She noted that the RBA’s decision to hold steady comes in the wake of subsiding momentum in inflation and consumer spending, which has in turn eased pressure off interest rates. Creagh stated, “This allows more time to assess the economic outlook as [the RBA] tries to engineer a soft landing whilst returning inflation to target.”

Creagh also pointed out that the substantial tightening already implemented is impacting economic activity, with consumer spending slowing and business surveys indicating weaker conditions are expected in the coming months.

The RBA’s latest decision comes amid “increasingly cooling economic activity”, as noted by CreditorWatch chief economist Anneke Thompson. She highlighted that B2B trade payment defaults are at record high levels, indicating tight cash flow for some companies. Thompson suggested that the savings levels of both consumers and businesses are now significantly impacting consumers’ ability to spend on discretionary items and some businesses’ ability to pay their bills on time.

As the unemployment rate is likely to trend upwards over the second half of 2023, Thompson suggested that inflationary pressure and wage pressure should lessen, hinting at the end of the hiking cycle. However, Tiller issued a slight warning: “We need to see the decline in inflation continue at the same pace, if it remains sticky then there is a chance they will increase interest rates again – so, we may not be at the end of the cycle just yet.”