RBA puts brakes on interest rate increases, easing pressure on mortgage borrowers

The Reserve Bank of Australia (RBA) has decided to discontinue its practise of raising interest rates in quick succession and keep the target cash rate at 3.6% amid an environment of “considerable uncertainty”.

Since May of the previous year, there have been 10 rate hikes – totalling a 3.5% increase in interest rates.

Mortgage holders with variable rates get a break

Homeowners, particularly those with variable mortgage rates, will experience some temporary relief as a result of the RBA’s most recent decision.

This break in the rate-hike cycle gives the RBA more time to analyse the effects of earlier interest rate increases and assess the overall economic outlook.

Data on employment and inflation influenced the decision, with the jobless rate falling back to 3.5% and inflation coming in at 6.8%, which was below market expectations of 7.1%.

RBA Governor Philip Lowe attributed the decision to pause rate hikes to recent changes in inflation trends and a generally stable unemployment rate.

Lowe noted the full effects of the last 12 months of significant rate increases have not yet manifested.

Future rate increases remain possible

While the RBA has decided to temporarily stop raising interest rates, Lowe cautioned further monetary policy tightening may still be needed to bring inflation back in line with the 2-3% target range.

RBA will closely monitor changes in household spending, changes in inflation and employment expectations, and global economic developments in order to decide if, and when interest rates should be raised and by how much.

The bank’s choice to keep interest rates at the current 3.6% level demonstrates the fine line between controlling high inflation and creating an environment of economic stability.