The Reserve Bank of Australia has kept its key interest rate on hold for the fourth straight month, giving mortgage holders another small reprieve.
The decision to keep the cash rate at 4.1% is the first one made with the new governor of the RBA, Michele Bullock, in charge.
In her first statement on monetary policy as governor, Bullock warned Australia was not out of the inflation woods yet and further interest rate rises remained on the cards.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks,” Bullock said.
“In making its decisions, the board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.
“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
Bullock said the outlook for household consumption remained uncertain “with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income”.
In June, the Australian Financial Review reported over-65s had continued to spend on discretionary items, such as holidays and airfares, while younger generations were cutting back spending in all areas.
While there was a small increase in month-to-month inflation figures last month, the RBA looks at core inflation – which strips out the most volatile price movements from the headline inflation figure, when making its decisions.
By ignoring the sudden price movements last month for holiday spending, fuel, and fruit and vegetables, the annual rate of growth for core inflation continued to slow a little.
But inflation is still stubbornly high overall, leading to fears of another rate increase by the end of the year.
Documents released under of information documents show RBA officials discussed data showing “a long lag between people first experiencing financial stress, and showing up in official data on loan arrears”.
The data showed increased demand on the national debt hotline, including from people with steady incomes who have never used the service before.
“For cultural and legal reasons, Australian borrowers place an extremely high premium (more so than elsewhere) on meeting the commitments they have with their mortgage lenders,” the RBA reported.
“They will typically avail of every option available to them – legal or otherwise – prior to selling their home or moving into foreclosure.”
The national debt hotline reported a significant number of callers experiencing hardship who were accruing additional debts via credit cards, BNPL, borrowing from friends and family, and increasingly unpaid obligations to the ATO, their utilities providers and council rates.”
People were also missing insurance payments, underinsuring or looking into how to access their superannuation early to make up for financial shortfalls.
The RBA said one takeaway from the discussion “was that we need to be reviewing a wider range of ‘leading edge’ data to better understand how arrears and [non-performing loans] (and household consumption) could evolve in the period ahead.”
CreditorWatch’s chief economist, Anneke Thompson, said the RBA’s decision was a result of continuing weak trade and consumer confidence, as well as the continued downward trend of core inflation.
But Thompson warned further job losses were likely, citing data showing job vacancies were falling well short of “their post-Covid peaks” and “this should result in the unemployment rate creeping up over the next few months”.
