In a decision that caught many commentators off guard, the Reserve Bank of Australia (RBA) kept the cash rate unchanged at 3.85% in July. While headline inflation has fallen within the RBA’s target range, lingering concerns about economic weakness and a softening labour market led the central bank to postpone the widely anticipated rate cut.
Why the RBA waited
- The board is awaiting the June quarter CPI data to evaluate if inflation stability is sustainable.
- Early signs of softening have been shown by Australia’s labour market, and business confidence has dropped slightly.
- Consumer spending remains subdued, especially among households with mortgages, prompting some economists to advocate for a rate cut to boost activity.
Potential impacts
Continuing interest rate stability exerts ongoing pressure on loan repayments and cash flow, notably for those with variable debt or finance leases. Businesses dependent on consumer discretionary spending might continue to experience difficulties. However, the current hold allows business owners time to prepare. Analysts anticipate a possible rate cut in late Q3 or early Q4 if current data trends persist, potentially providing relief before the holiday season. Given the current situation, it’s a good time to assess your debt levels, optimise cash flow, and explore refinancing options.
There’s a lot to consider. If you need assistance with any of the topics discussed, please don’t hesitate to reach out.