Reserve Bank’s early Xmas gift to borrowers

The Reserve Bank has paused interest rates at its final meeting of 2023, delivering millions of families a reprieve from another rise in their mortgage repayments early in the New Year.

Central bankers decided to leave the cash rate target unchanged at a decade high 4.35 per cent at a meeting on Tuesday, where it will stay until at least next February when the RBA returns.

RBA governor Michelle Bullock said that a pause over the end of year period would allow time for more economic data to flow in, which will help determine the path for rates in early 2024.

“The limited information received on the domestic economy since the November meeting has been broadly in line with expectations,” she said.

“Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labour market.”

Most economists had expected a pause in December following the RBA’s hike last month, with inflation still easing despite a hotter than expected result for prices over the September quarter.

Households will be spared another $78 increase in monthly repayments on a typical $500,000, 25-year home loan that would have occurred had the RBA hiked interest rates again today.

But the more than $1200 in repayment increases since central bankers first began hiking rates in May 2022 are still squeezing budgets, with family Christmas spending set to be constrained.

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 within the RBA’s desired horizon (late 2025) remains to be seen though, with the door open to hikes in 2024.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks,” Bullock said on Tuesday.

December quarter inflation data set to be released on January 31 will be the next big clue for the RBA in determining whether inflation has eased fast enough to spare families higher rates.

Central bankers are projecting the headline CPI will fall to 4.5 per cent annually, which would be down from 5.4 per cent over the September quarter.