In a highly anticipated move, the Reserve Bank of Australia (RBA) decided to maintain the cash rate at 4.10% during its August meeting. This decision comes after a series of aggressive rate increases, with the cash rate having risen by 400 basis points since May 2022, marking the most intense tightening cycle in modern history aimed at curbing inflationary pressures.

Economists had been divided on whether the RBA would continue its rate hike spree or take a pause. During July, over half of the economists surveyed (20 out of 36) predicted a 25 basis point increase in the official cash rate to 4.35%—a level not seen in nearly 12 years. As the announcement drew nearer, speculation was rife among major banks, with the Commonwealth Bank of Australia (CBA) and Westpac expecting a 25 basis point hike, while ANZ and NAB predicted a pause.

While the decision to hold the cash rate steady at 4.10% has come as a relief to some, it’s crucial to note that the central bank may not be done with rate adjustments. While the CBA expects the cash rate to peak at 4.35% before gradually easing to 3.10% by November 2024, Westpac and NAB both foresee a higher peak—4.60%—before a subsequent decline. Westpac estimates the peak to occur by September 2023, followed by a drop to 3.35% by May 2025, while NAB predicts a similar peak in September 2023, but with a lower drop to 3.10% by November 2024.

ANZ, which had initially forecasted a rate rise in July, remains cautious about abandoning its prediction of a 4.6% peak. The bank’s head of Australian economics, Adam Boyton, commented on the uncertainties following the RBA’s decision to pause, signalling that “the journey to the 4.6% level may not be straightforward”.

For the real estate market, these interest rate fluctuations can have significant implications. Homebuyers will need to keep a close eye on the market dynamics, as changes in interest rates can impact housing affordability and demand. As rates climb, borrowing costs can rise, potentially affecting property prices and the overall market sentiment. This pause in rate hikes might offer a temporary respite to buyers, allowing them some time to assess their options before the next potential increase.

The RBA’s decision has brought some relief to homeowners and borrowers. However, the future remains uncertain, as economists and major banks have differing opinions on where interest rates will peak.

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In a surprise move defying investor expectations, the Reserve Bank of Australia (RBA) has raised its cash rate by 25 basis points to 3.85%. This is despite last week’s release of weaker-than-expected-inflation, which the RBA chose to overlook. The raise brings the cumulative increase to 3.75 percentage points and comes on top of 10 consecutive rises since last May.

RBA governor, Philip Lowe, stated that “Inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range.” He went on to say that given the importance of returning inflation to target, the board judged that a further increase in interest rates was warranted.

While some economists were surprised by the decision, the RBA was more focused on other factors such as the nation’s population expected to swell by 700,000 this year and next, a jobless rate at near half-century lows, and a rebound in the property market. The RBA also warned that there may be more interest rate hikes to come.

The announcement sent the Australian dollar soaring and shares plummeting, as investors weighed the impact of higher borrowing costs on companies.

The expected rise in the population and near half-century lows in jobless rates could result in increased demand for housing, further driving up property prices. However, it remains to be seen whether these factors will outweigh the potential negative impact of higher borrowing costs.

Despite the rate hike, the RBA’s expectation of a modest rise in GDP growth rate to “around 2%” by the 12 months to 2025 is unchanged from February.

While the rebound in property prices is a positive sign for homeowners and investors, the higher borrowing costs may result in a slowdown in the market. Investors and property owners should remain vigilant and consider the long-term impact of the RBA’s decision on their property portfolios.

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