The Reserve Bank’s surprise decision to keep the cash rate on hold at 3.85% in July has forced many home buyers to rethink their next move – but experts said the rate pause could be a strategic opportunity for savvy buyers.
In a sharp deviation from forecasts by all of the big four banks, RBA opted to pause amid a mixed economic backdrop: inflation has eased to a three-year low and sits within target, unemployment remains historically low, but cost-of-living pressures and global uncertainty persist.
Markets and economists had expected RBA to cut the rate to 3.6%, which would have delivered relief for mortgage holders and boosted borrowing capacity. Instead, the central bank held firm – and that could give buyers a key timing advantage.
REA Group senior economist Anne Flaherty (pictured) said while the hold was “bad news” for mortgage holders, it could benefit those still trying to enter the market.
The “decision to hold could be considered bad news for mortgage holders on variable interest rates, but on the other hand, for those people who are yet to get into the property market and who are currently looking to buy, it's not necessarily bad news,” Flaherty said.
“We know that typically when interest rates are lowered, that can fuel upward growth in property prices.”
She said the decision might have dented confidence for some, but a cut as soon as next month could quickly shift sentiment again.
“If that happens, that might undo some of the nerves that have emerged from yesterday,” Flaherty said. “For someone who buys now, by the time they settle, they might be able to get a lower interest rate anyway.”
RBA Governor Michele Bullock said the central bank’s board wanted to see the June quarter Consumer Price Index (CPI) figures, due July 30, before cutting again.
“Quarterly trimmed mean inflation has only been in our 2% to 3% target range for one quarter,” Bullock said. “We’ve already cut the cash rate by 50 basis points since February this year, the effects of which are still to flow through to the economy.”
She stressed the decision was about “when” to ease, not “if.”
“It wasn’t really directionally where we think we’re heading in terms of easing, it was more about timing,” Bullock said. “There’s five weeks until the next meeting, by then we will know what the June quarter CPI is. If it comes in – as we think it will – continued decline, then that validates our easing path.”
Bullock also acknowledged that global uncertainty played a key role in the board’s cautious approach.
RBA’s caution follows the May monthly CPI, which showed annual inflation at 2.1%, inside the target range. However, the trimmed mean inflation – the RBA’s preferred gauge – rose to 2.4%, down from 2.8% in April.
Flaherty said it made sense for the RBA to rely on quarterly data before adjusting the rate again.
“It’s just [the] nature of the data. [The monthly CPI data] doesn’t encompass everything and what that means is that the monthly indicator can be a bit more volatile than the actual official inflation data,” she said.
Cate Bakos, a Melbourne-based buyer’s advocate, said the hold gives active buyers a key advantage.
“Most people who are in the market are relieved that they've got at least another six weeks to buy while they can and not experience an uber-competitive environment,” Bakos told realestate.com.au.
“I’ve had a lot of people desperately wanting to buy in winter to avoid the herds. This gives them a chance to be able to purchase in better conditions before the market really takes off.”
While lower interest rates can help mortgage affordability, Bullock said the root issue for many first-home buyers remained high housing prices.
“It’s not only the interest rates that are the issue for the young people, it’s the housing prices,” she said. “There’s nothing we can do about housing prices, and in fact, I’ve heard criticisms that we shouldn’t lower interest rates because housing prices will go up – so we can’t win.”
Bullock reiterated that a rate cut in August was possible but dependent on inflation staying on track.
“We don’t want to end up having to fight inflation again, we want to make sure we’ve nailed it,” she said. “Provided we stay on track with our inflation, which that’s what we’re looking to do, then there is opportunity for interest rates to come down.”
Flaherty acknowledged the July hold was a shock for many but said both mortgage holders and prospective buyers should remain optimistic.
“It’s not if it’s when,” she said. “We said there was a really good chance of July, but I still think there’s a really good chance of a cut in August. So, for those mortgage holders who are struggling, hang in there because there is still a very strong chance, we will see interest rates move within the foreseeable future.”
