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In what was his final-ever board meeting as the Reserve Bank of Australia (RBA) governor, Philip Lowe has said the central bank’s decision to hold the cash rate indicates “inflation has passed its peak”.
Despite Mr Lowe’s estimation that the worst of inflation has passed, supported by July’s Consumer Price Index (CPI), he insisted it’s “still too high and will remain so for some time yet”. Its forecast inflation won’t return to the RBA’s intended target range of 2–3 per cent until the end of 2025.
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Mr Lowe affirmed beliefs of higher interest rates born from the RBA’s persistent rate hiking cycle of the last 18 months are “working to establish a more sustainable balance between supply and demand in the economy and will continue to do so”.
With this in mind, the board opted to hold the cash rate at 4.10 per cent, marking the third consecutive month the nation avoided a rate hike. In the eyes of CoreLogic research director Tim Lawless, the decision was “widely anticipated”.
He added the softening of several key economic indicators, including inflation’s decline, signs of a loosening labour market, and a pullback in household spending, have resulted in “mounting speculation the rate hiking cycle peaked in June”.
Mr Lawless said: “It may be too soon for a pause in the cash rate to have a significant impact on purchasing demand” but noted the CPI rental data suggests “rental prices are likely to add to inflationary pressures for some time yet.”
Even with the Australian housing market showing clear signs of recovery over recent months, Mr Lawless stressed that the “recovery trend is occurring across volume that remains slightly below the five-year average”.
“A more robust recovery in housing market activity is likely to be constrained by high interest rates and affordability hurdles in the short term,” he remarked.
Key to driving the housing market’s rebound will be consumer sentiment, which has hovered around “recessionary lows for almost a year now”.
Mr Lawless noted: “If we see a growing expectation that interest rates have peaked, alongside lower cost-of-living pressures, sentiment measures are likely to rise.”
However, he did warn: “Confidence has a long way to recover before getting back to a neutral setting.”
In the eyes of Geoff Lucas, managing director at The Agency, this “new environment we are seeing will likely create improved confidence for Australians to transact their homes in a market with less pricing volatility and greater stability in prices”.
He expects the predicted increase in unemployment to result in increased stock arriving on the market. However, this will come with “reduced buyer demand in some parts of the market”.
Mr Lowe concluded that “some further tightening of the monetary policy may be required to ensure that inflation returns to target in a reasonable time frame”.
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