Interest rates Australia: Reserve Bank leaves interest rates on hold in July at 4.35 per cent

The Reserve Bank has paused the rate hikes for only the second time this year but the relief is likely to be short-lived because inflation is still too high.

The cash rate was left on hold at an 11-year high of 4.1 per cent.

This marked only the second pause since April, with interest rates since May 2022 surging at the most aggressive pace since 1989. 

Reserve Bank of Australia Governor Philip Lowe, whose seven-year terms ends on September 17, hinted this pause was only likely to be temporary after a peak in the consumer price index or headline inflation.

‘Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline,’ he said.

‘Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.’

Inflation in May moderated to 5.6 per cent, down from 6.8 per cent in April, but the annual pace was still well above the RBA’s 2 to 3 per cent target. 

Annual repayments on an average, $600,000 mortgage are still $17,556 higher than they were 14 months ago when the cash rate was still at a record-low of 0.1 per cent.

Since then, variable mortgage rates have risen from levels starting with a ‘two’ to a zone where even a borrower with a 20 per cent deposit will now be paying 6.44 per cent with the Commonwealth Bank.

In 2023 so far, borrowers have only had a reprieve in January – a month when the RBA doesn’t meet – and April. 

The latest pause surprised the big four banks, which had all expected a July increase. 

Westpac senior economist Matthew Hassan said the RBA was still likely to hike rates two more times, taking the cash rate to 4.6 per cent.

‘W e think there’s still another two interest rate hikes,’ he said.