RBA holds cash rate at 4.10% for second consecutive month – what borrowers should do now

The Reserve Bank has today left the cash rate at 4.10 per cent, announcing a pause for the second meeting in a row, and third time this year.

Governor Philip Lowe’s statement today noted that Australia’s economy was in a period of “below-trend growth” but that further cash rate hikes may be required.

Households, however, will be feeling the ‘painful squeeze’ of the RBA’s previous 12 cash rate hikes, with the majority of variable borrowers still yet to see their monthly repayments rise as a result of the last hike in June.This is because there is typically a 2 – 3 month lag on when the cash rate goes up, and when that extra money comes out of borrowers’ bank accounts.

Impact of June hike still to come and total increase across the 12 hikes

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April 2022.

Are we there yet? 

Today’s second consecutive pause in the cash rate is cause for hope that the country is now at or near the top of this tightening cycle. However, there’s no guarantee the rate cycle has peaked.

Annual inflation, based on quarterly results, is still at 6 per cent, which is double the top of the RBA’s target band of 2-3 per cent and well behind the US which hiked rates last week, despite making significant headway on inflation which is currently sitting at 3 per cent.

That said, Australian households are more sensitive to cash rate changes than borrowers in many other countries such as the US, UK and New Zealand who are predominantly on fixed rates.

At 4.10%, this cash rate could be the right level of pressure on family budgets to bring down inflation without further intervention.

That said, borrowers are encouraged to plan for at least one, if not two, more rate hikes this year.

How Australia’s inflation and cash rate compares to other countries 

Source: RateCity.com.au. Note: European Union notes the Main Refinancing Options, effective 2 August 2023. The ECB rates on the marginal lending facility and the deposit facility are 0.25% and -0.25% respectively. *Harmonised index of consumer prices (HICP)

What borrowers should do now

Borrowers should use this time to refinance, or at least haggle with their current lender.

According to the RateCity database, a decent variable rate will still be under 5.75 per cent, while an ultra-competitive rate will be below 5.50 per cent.

How much could you save by renegotiating your loan when compared to ‘do nothing’

Based on $500,000 debt with 25 years remaining - contact us for other loan sizes

Source: RateCity.com.au. Note: Big four bank average includes Westpac’s introductory rate. LVR requirements apply.

Lowest variable rates available on RateCity.com.au database

Source: RateCity.com.au Note: Fire Services Credit Union loan limited to emergency services professionals and their families in South Australia only. LVR Requirements apply

RateCity.com.au research director Sally Tindall, said: “The RBA has hit the pause button again in a bid to get the balance right.”

“With inflation, retail trade and household deposits now all coming down, the data has finally swung in its favour, giving the Board a much-needed opportunity to take stock,” she said.

“The RBA is well aware that most variable borrowers still haven’t paid for rate hike number 12, so there’s still more pain to come, even without another rise.

“While it’s impossible to say at this stage whether this will be the end of the hikes, the RBA can at least use this next month to assess whether it’s possible to rein in inflation without having to tighten the screws any further.

“The cash rate might be on hold however borrowers should do anything but sit tight. This second pause is a fantastic chance for borrowers to measure up their home loan rate against the pack.

“Your bank might tell you you’re on a sharp rate but that doesn’t necessarily make it a fact.

“The RateCity.com.au database shows there are still five lenders offering variable rates under 5.5 per cent. That’s a far cry from what the big four banks are currently offering new customers.

“Borrowers should also spend this month, prepping their budgets for at least one, if not two more rate rises. If that number doesn’t fit in your budget, start making changes so that it does,” she said.

Compare home loans in Australia