The central bank has announced its decision to hold the official cash rate as the RBA governor wraps up his tenure.

The Reserve Bank of Australia (RBA) has decided to hold the official cash rate at 4.1 per cent, in a decision that was widely expected by the market and economists.

This pause marks the third consecutive time the RBA has left the cash rate unchanged and the fourth pause since the central bank began lifting interest rates in May 2022.

Notably, this is also the final cash rate decision for RBA governor Philip Lowe, whose seven-year tenure draws to a close next week. Mr Lowe’s successor Michele Bullock will be assuming the role of RBA governor – becoming the first female governor of the central bank – from 18 September 2023.

Mr Lowe said following the decision: “Interest rates have been increased by 4 percentage points since May last year. The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so. In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month. This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”

“The recent data are consistent with inflation returning to the 2–3 per cent target range over the forecast horizon and with output and employment continuing to grow. Inflation is coming down, the labour market remains strong and the economy is operating at a high level of capacity utilisation, although growth has slowed.”

Mr Lowe continued that there are significant uncertainties around the outlook, such as services prices inflation, lags in the effect of monetary policy, and how firms’ pricing decisions and wages respond to slower economic growth in a tight labour market.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will continue to depend upon the data and the evolving assessment of risks.

“In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market,” Mr Lowe concluded.

Reacting to the cash rate decision, executive director of aggregation group Connective, Mark Haron, said this third consecutive pause in the rate-hiking cycle “might signal stronger economic resilience” for Australia. He added the pause would offer mortgagors some reprieve, however, the pressure and complexity of the borrowing landscape persists.

“There is increasing evidence that borrowers are experiencing financial distress and hardship in the current economic climate,” Mr Haron said.

“For many, the pressure of mortgage stress could stretch well into next year and the landscape remains complex for new borrowers.

“We’ve still got thousands more Aussies to roll off their fixed rates and we all know it’s more difficult to move across lenders.”

Anthony Waldron, chief executive of aggregator Mortgage Choice, said the decision to hold the cash rate will be welcomed by borrowers and those seeking to buy a property this spring selling season.

“This is the third month with no change to the cash rate, following new economic data from the Australian Bureau of Statistics that shows a rapid slowing of inflation and a reduction in consumer spending,” Mr Waldron said.

In the lead-up to the decision, CEO of aggregation group Finsure, Simon Bednar, predicted the RBA would hold the cash rate to monitor the impact of the previous hikes.

“There is still the looming fixed interest rate impact for the RBA to consider,” Mr Bednar said.

“I think there are around 40 per cent of the lower fixed rate home loan terms set to expire by the end of 2024, and another 20 per cent by the end of next year.

“This will continue to push inflation down as home owners cut back on spending to accommodate the increase in mortgage repayments.”

While a third hold will come as welcome news to mortgage holders, Louisa Sanghera, director and principal broker at Zippy Financial, said many borrowers are likely still stuck in mortgage prison.

“While it is possible there will be cash rate reductions next year, some homeowners may not be able to hold on until that becomes a reality – especially when they are already struggling with the cost-of-living crisis as well,” Ms Sanghera said.

Manging director of the Finance Brokers Association of Australia (FBAA) Peter White AM said the economy and community needs time to settle to “assess real impact of these interest rate rises – financially and in terms of mental health.”

Repayments to hit historical peaks

Following the RBA’s Statement on Monetary Policy in early August, the board projected that scheduled mortgage repayments are set to increase “to a historical high” of around 9.8 per cent of household disposable income by end of 2023.

The share of household disposable income put towards scheduled mortgage repayments increased to 9.4 per cent in the June quarter, already near this historical peak.

Members of the RBA board agreed that these payments were set to increase further as more mortgage holders who roll off their fixed-rate terms move onto new, variable-rate mortgages.