Shock blow for Aussie mortgage holders

Yahoo

11 hours ago

Australian households will have to wait a little longer for more mortgage relief, with slowing inflation and weak retail sales not enough to sway the Reserve Bank that the fight against rising prices is over.
A cautious RBA has held the official cash rate at 3.85 per cent in its July meeting, with the shock move defying expert commentators and the money markets predictions.
Prior to Tuesday's announcement, the money market had placed a 92 per cent chance on a rate cut off the back of weaker-than-expected economic data.
Mortgage holders will now have to wait until August at the earliest to get further interest rate relief.
bRight Agent co-founder Aaron Scott called the surprise hold a 'cruel blow' for millions of Australian homeowners.
'Despite the fact that a July cut would not have been enough to give most mortgage holders a meaningful reprieve, it would have been welcome by the millions of Aussies who are holding out for more cost-of-living relief,' he said.
'Nobody will be breaking out the Wagyu beef or shiraz.
'The real question is what do the big banks do. Do they still pass along lower rates to mortgage holders?
'Do they stop cutting savings rates for those with savings deposits?'
The RBA Board said while inflation was falling, it wanted to wait for a 'little more information' before moving on rates.
'Uncertainty in the world economy remains elevated,' the Board wrote in its statement.
'While the final scope of US tariffs and policy responses in other countries remains unknown, financial market prices have rebounded with an expectation that the most extreme outcomes are likely to be avoided.
'Trade policy developments are nevertheless still expected to have an adverse effect on global economic activity and there remains a risk that households and firms delay expenditure pending greater clarity on the outlook.'
The Board also said domestic factors had played a role in its decision, including a gradual recovery in household incomes and an easing in some measures of financial stress.
'There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments,' the Board said.
'There are also uncertainties regarding the lags in the effect of recent monetary policy easing and how firms' pricing decisions and wages will respond to the balance between demand and supply for goods and services, tight conditions in the labour market and continued weak productivity outcomes.'
The statement concluded by saying the Board judged it 'could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis'.
The Board voted 6-3 in favour of the hold.
Tuesday's announcement follows a rate cut in May, with the central bank opting against back-to-back movements in the official cash rate.
REA senior economist Anne Flaherty said Tuesday's hold could depress price growth in real estate moving forward.
'Today's decision to hold may slow the pace of price growth seen in the months following the February and May cuts,' she said.
'Nationally, prices are up 3.2 per cent since the start of the year, adding around $26,000 to the median price of a home.
'For many, affordability constraints continue to weigh heavily, as many households grapple with stretched budgets.'
VanEck head of investments and capital markets Russel Chesler said markets were getting ahead of themselves and changes to monetary policy takes time to unwind.
'Markets seem to be throwing caution to the wind with their expectation of two more cuts this year, implying further falls in inflation and a softer job market,' he said
'The unemployment rate has remained steady at 4.1 per cent, which is close to historical lows, and there are no signs of this changing.'
Ahead of the announcement, Betashare chief economist David Bassanese said the 'case for a rate cut had not been established.'
'Although May trimmed mean annual inflation dropped to 2.4 per cent, this followed a solid 2.8 per cent gain in April – and there's every risk it could bounce back again in the more comprehensive and reliable June quarter CPI report later this month,' he said.
'Prudence suggests the RBA should and would await confirmation of lower inflation in the quarterly CPI report before cutting again in August – despite the market pricing a rate cut next week with near certainty.'
Deloitte Access Economics head Pradeep Philip, meanwhile, said major institutions had lowered global growth forecasts on the back of trade uncertainty triggered by US President Donald Trump's tariff moves.
'Over recent months, the World Bank, the IMF, and OECD have all lowered global growth forecasts, primarily based on trade uncertainty,' he said.
'We are now in a world where geopolitics is driving economics.'
He argued a rate cut would have been a 'sensible move akin to taking out insurance to support the Australian economy by helping rebuild business confidence to drive investment'.
'Domestically, with inflation continuing to come down and government spending still supporting the economy, our biggest economic challenge remains boosting business investment to lift productivity. This provides a clear case for the continued easing of monetary policy,' he said
He reiterated Deloitte's expectation of a further 50 basis points of rate cuts for the remainder of 2025 and then another 50 basis points in 2026.
betashares chief economist David Bassanese predicted the RBA would keep rates on hold.
'As I have consistently argued in recent weeks, the case to cut rates today was never compelling,' he said.
'While consumer spending remains stubbornly weak, the labour market remains strong.
'And while the recent monthly CPI report showed a large decline in annual trimmed mean inflation to 2.4 per cent, monthly reports are notoriously volatile. Only the month prior, trimmed mean annual inflation was at 2.8 per cent.
'To my mind, the RBA would wait for the more reliable quarterly CPI report later this month to confirm a decline in underlying inflation before cutting rates again in August.'