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    Christmas Cheer: RBA Leaves Rates on Hold

    The Reserve Bank has delivered a Christmas respite for Australians with a mortgage, leaving the cash rate unchanged at its December board meeting.


    The central bank has decided to keep the cash rate steady at 4.35%.


    Rates have risen no less than 13 times - the latest a 25 basis point increase in November - since the bank started lifting them in May 2022, in a bid to try to curb runaway inflation in Australia.


    The RBA Board isn’t due to meet again until February next year, and the bank has decided to wait until then to better assess the full impact of its rate-rising campaign so far.


    But the central bank has also not ruled out further rate increases, declaring it remains “resolute in its determination to return inflation to target (2-3%) and will do what is necessary to achieve that outcome.”


    RBA holds_dec_6_23


    What’s behind the decision?


    In a statement, RBA Governor Michele Bullock said the board believed that “the limited information received on the domestic economy since the (RBA’s) November meeting has been broadly in line with expectations.”


    She pointed to monthly CPI data released last week, which “suggested that inflation is continuing to moderate, driven by the goods sector.”


    However, she pointed out that the ABS figures “did not, however, provide much more information on services inflation.”


    Ms Bullock has recently highlighted increases in the prices of services as a cause for concern, singling out price increases by hairdressers and dentists.


    Senior economist at the ANZ Bank, Adelaide Timbrell, said the decision to keep rates on hold was expected, but she described it as a “hawkish hold”. 


    “There is still probably a skewed probability towards, if there's action over the next six months, it'll be a (another rate) hike, not a cut,” she told ABC News.


    “But I think the Reserve Bank is increasingly confident that they will not need to hike for the rest of the cycle.” 


    “They're not ruling it out though.”


    Even though ANZ expects the next movement in interest rates will be down, Ms Timbrell said she assessed that the cash rate would stay above 4% for some time.


    “The central case in our most likely scenario is that we're done, but we will need to face this 4.35% cash rate for some time.” 


    “Our call is that it won't be until around November next year that we start to see rates come down.” 


    What does this mean for mortgages?


    With the RBA cash rate at 4.35%, most Australians with a variable mortgage on owner-occupied home loans will be paying interest rates of between 6-7%.


    Rate comparison websites estimate another 25 basis point interest rate hike in December would have added around $80 in monthly repayments to a typical $500,000, 25-year home loan. 


    Homeowners may have been spared that, but they are already paying $1,200 extra a month since central bankers first began hiking rates in May last year - a real hip pocket pinch. 


    As the New Daily’s Matthew Elmas puts it: “A consumer retreat is exactly what the RBA is trying to cause with rate hikes, because it’s harder for businesses to pass on higher prices when consumers are buying fewer goods and services.”


    “Whether the slowdown is enough to push inflation back to the target band (2-3%) within the RBA’s desired horizon (late 2025) remains to be seen though, with the door open to hikes in 2024.”


    The Federal Treasurer Jim Chalmers welcomed the RBA’s decision to leave rates on hold, but was cautious:


    “We're not getting carried away because we know that people are still under pressure,” he told journalists in Canberra. 


    “We know that people are still doing it tough, we know that people are finding it difficult to make ends meet.” 


    “But if you look at the recent data, you look at the recent commentary, it's very clear now that we are making welcome and encouraging progress in this fight against inflation.”


    More data:


    Interestingly, some of Michele Bullock and the RBA board’s concerns about inflation are backed up by new data from CommSec.


    It shows households are spending less on both discretionary and non-discretionary goods.




    But it shows increased spending on services, up 7% through the year on a current price, calendar-adjusted basis.