RBA cash rate steady at 4.10% after August's monetary policy decision

In his penultimate monetary policy decision as RBA Governor, Dr Philip Lowe decided against what would have been a thirteenth rate hike in 15 months.

Headline inflation continues to slow as the rate increases already implemented work to curb discretionary spending.

Dr Lowe said higher rates are already working to establish a more sustainable balance between supply and demand in the Australian economy.

"In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month," he said.

"This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook."

He said much of the important data (CPI inflation, household consumption growth, GDP growth) is consistent with inflation returning to the 2-3% target range by 2025.

A pause was widely expected, with the RBA rate tracker powered by the ASX suggesting there was an 86% chance the board would hold rates once again.

Economists from NAB and ANZ correctly anticipated the hold.

Dr Lowe maintained further tightening may be necessary in the months to come, a sentiment echoed by CPA Australia spokesman Gavan Ord.

"Notwithstanding today’s rate reprieve, higher interest rates, rising wages and increased costs will keep putting pressure on small businesses. Many businesses will need to pass these costs on to consumers," Mr Ord said.

"There’s every likelihood today’s decision to hold rates is only temporary. Prudent businesses should be factoring in further rate increases into their business projections."

The labour market remains very tight which adds inflationary pressure, but Dr Lowe says the board expect the unemployment rate will creep up from 3.5% to 4.5% by the end of 2024 as the economy slows.

"At the aggregate level, wages growth is still consistent with the inflation target, provided that productivity growth picks up," Dr Lowe said.

However, he also highlighted potential risk factors that could make yet more rate increases necessary.

"Services price inflation has been surprisingly persistent overseas and the same could occur in Australia," Dr Lowe warned.

"There are also uncertainties regarding the lags in the operation of monetary policy and how firms' pricing decisions and wages will respond to the slowing in the economy at a time when the labour market remains tight."

Time for the government to do more heavy lifting?

Today's monetary policy decision comes hours after the ABS revealed the number of loans issued in June for the purchase and construction of a new home fell to the lowest level since 2008.

The cash rate increases continue to curb the supply of new houses in Australia, at a time of housing shortages across the nation.

Housing Industry Association (HIA) Chief Economist Tim Reardon called for government action in the face of a cash rate that remains at the highest level since April 2012.

"Against the headwinds of rising interest rates, governments need to respond by reducing the tax on housing, attract more investment, improve the supply of land for greenfield and brownfield projects and invest in new public housing stock," Mr Reardon said.

Lending indicators for June also showed a slight increase in borrowers fixing their home loan rates in the face of ongoing uncertainty about the direction of the cash rate.

This includes those refinancing, of which there was 12.6% more of than in June 2022, which ABS head of finance statistics Mish Tan attributed to rising interest rates.

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