Homeowners were relieved of further pain yesterday, following the Reserve Bank of Australia's (RBA) decision to keep the cash rate unchanged at 4.35%.

Better yet, this rate will remain unchanged until the RBA's next cash rate decision on August 6.

The 4.35% cash rate has now remained stable for eight months, or since November 2023, and unchallenged by five RBA board meetings since this date including those in December 2023, and February, March and May this year.

Yesterday's announcement left most of the financial industry unsurprised, including the Big 4 Banks, all of whom predicted a steady outcome from the RBA.

At the same time, the Big 4 - starting with the ANZ - are pushing back their predictions for a rate cut in 2024.

As recently as March 2024, ANZ forecast that rate cuts would begin in November this year but just last week, announced cuts would more likely occur in early 2025 - at least.

The remaining Big 4 are still looking to November this year for the first rate cut.

"Inflation is proving persistent"

RBA governor Michele Bullock spoke again today of the "proving persistent" inflation, with the Consumer Price Index (CPI) reaching 3.6% in the 12 months to the March 2024 quarter, according to the Australian Bureau of Statistics (ABS).

She acknowledged it had "fallen substantially since its peak in 2022" but "the pace of decline has slowed in the most recent data".

Ms Bullock also called out continuing concerns with labour market conditions; wages growth; household consumption; unit labour costs; productivity growth; services price inflation and the overseas outlook.

However, in the press conference following her cash rate announcement, Ms Bullock admitted that "inflation was a blunt instrument... but it was the only tool to drop interest rates".

She said it was very difficult to get a firm handle on CPI when data was only released every quarter, which was rare for a developed country.

And, while she was pleased with positive employment numbers, aggregate demand was still too strong when compared to that of supply - and this was helping to keep inflation high.

As for the future, Ms Bullock maintains that inflation will return to the target range of 2–3% in the second half of 2025 and to the midpoint in 2026.

"But since (these May forecasts), there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth," Ms Bullock said.

She added that recent budget outcomes may also have an impact on demand; however, real disposable incomes have now stabilised and are expected to grow later in the year, assisted by lower inflation and tax cuts.

"There has also been an increase in wealth, driven by housing prices," Ms Bullock said.

Mortgage arrears may damage insulated markets 

Following yesterday's RBA announcement, CoreLogic research director, Tim Lawless gave some more encouragement to homeowners on a variable mortgage loan.

Mr Lawless said while the cash rate had increased 425 basis points since the record low of 0.1% between November 2020 and April 2022, variable rates hadn't experienced quite the same lift.

He believes this smaller rise in variable rates is due to a heightened level of competition among lenders, which in turn is due to more borrowers shopping around for the best rates.

"The average variable mortgage rate for a new owner-occupier loan has risen to an estimated 6.27% in June - a rise of 386 basis points since April," Mr Lawless explained.

"Similarly, the average variable mortgage rate on a new investor loan has risen by 382 basis points to an estimated 6.53%."

Mr Lawless added that housing markets also seem to be "somewhat insulated" despite "an array of headwinds" including higher interest rates, cost-of-living pressures, low consumer sentiment and stretched affordability.

He said home sales volumes are higher than a year ago and above the five-year average, which he believes reflects purchasers' consistently strong demand from purchasers.

"The RBA made a point of calling out an increase in household wealth via higher housing prices which, together with a rise in disposable incomes, could support household spending," he said.

Mr Lawless agreed that most borrowers are keeping their mortgage repayments on track; however, he added that APRA data for the March quarter revealed mortgage arrears are trending higher - albeit from a low base and remaining lower than pre-COVID levels. 

And too, it’s likely mortgage arrears will rise further, based on paused interest rates, loosening labour market conditions and borrowers' reduced saving buffers.

"Mortgage arrears, including non-performing loans and borrowers that are 30-89 days overdue in their repayments, comprise 1.6% of home loans for all ADIs (authorised deposit-taking institutions," Mr Lawless explained.

"This is up from just 1% in the September quarter of 2022, but below the 1.8% level recorded at the onset of COVID in March 2020."

The RBA’s next monthly cash rate announcement will be on Tuesday, August 6 at 2.30pm AEST. This will be followed by announcements in September, November and December.