Freshly minted Reserve Bank governor Michele Bullock has spared borrowers further rate pain by holding the cash rate steady at 4.1 per cent, but warned further hikes may still be needed.
Tuesday’s decision marks the fourth consecutive month that the central bank has kept rates steady, as it awaits the delayed impact of the 12 previous hikes.
The full effect of interest rates typically takes between 12 to 18 months to flow through the economy, however, due to an increase in fixed-rate lending during the pandemic, the transition may be even slower through this tightening cycle.
Economists almost unanimously expected rates to be held steady for Ms Bullock’s first meeting as top central banker – despite stubbornly persistent price pressures – with bond traders implying just a one-in-10 chance that rates would be hiked to 4.35 per cent.
Borrowers have warned not to celebrate an end of the tightening cycle just yet, with markets ascribing a 62 per cent chance that the RBA will have hiked rates even further before the year’s end.
A rebound in property prices, coupled with a still-red hot jobs market and an oil price spike all risk posing an inflationary headache for the RBA, and will be watched closely in the months ahead.
The October decision follows fresh monthly inflation data, released by the ABS on Wednesday that showed price pressures accelerated for the first time in four months.
Soaring costs for fuel, rents, and across the labour-intensive services sector pushed consumer price growth to 5.2 per cent in the year to August, up from 4.9 per cent in July.
Experts say continuing weak retail trade and consumer confidence data has offered the board a clear sign that their concerted efforts to reduce demand in the economy have worked.
CreditorWatch said the economy appeared to “be maintaining a steady slowdown”.
It comes as new internal RBA research, released under Freedom of Information, shows almost one in five home borrowers are spending more than 30 per cent of their household income on repayments.
Before the RBA began its aggressive rate hike series last May, that figure was just 14.5 per cent of home borrowers.
Battered by 12 interest rate hikes in the last 16 months, Australian households with an average loan size of $585,000 are now spending an additional $1415 each month on repayments.
Higher interest rates have also substantially diminished the amount households can borrow. A family with two children and a household income of $150,000 have had their borrowing capability slide by 28 per cent to $623,400 since last May.