Relief as Reserve Bank hits pause on interest rates

The Reserve Bank of Australia has paused interest rate rises for the second time in 14 meetings. (Dan Himbrechts/AAP PHOTOS)

Mortgage holders have been granted a welcome breather from interest rate rises, as the Reserve Bank decides to wait and see how its series of hikes wash through the economy.

Australia's central bank moved to the sidelines in July after 12 interest rate rises in the tightening cycle, leaving the official cash rate at 4.1 per cent.

The RBA is at the pointy end of its aggressive interest rate increases but further tightening remains on the table, with Philip Lowe keeping the same reference about possible future increases as in May and June. 

"Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve," the RBA governor said.

The governor offered a couple of reasons for keeping the cash rate on hold, including four percentage points of hikes that had already been delivered but would take time to flow through.

The board also took note of the sharp fall in inflation growth, with the monthly consumer price index falling to 5.6 per cent in May from 6.8 per cent in April.

Ahead of the August rates decision the board will have access to data including June quarter inflation.

KPMG chief economist Brendan Rynne said the pause would also give the central bank a chance to see how mortgage holders were responding to the rate hikes.

More mortgage holders are expected to fall off the so-called mortgage cliff over the next three months as borrowers on ultra-low fixed rates roll onto more expensive alternatives.

Dr Rynne also noted one in five low rate owner-occupier loans would be unable to refinance when the cash rate reached 4.6 per cent, according to RBA estimates.

He said the July call could have gone either way and the statement kept a tilt towards more tightening.

Finance Minister Katy Gallagher said borrowers would appreciate the much-needed interest rate relief.

She said the government was working alongside the central bank, not against it, to return inflation to target. 

"Our commitment to save where appropriate rather than spend is driving substantial improvement in the budget bottom line in the near term, when the inflation challenge remains a real one for millions of Australians," she told reporters.

Shadow treasurer Angus Taylor said the government should be pulling every policy lever at its disposal to take pressure off inflation, noting it had added $185 billion in spending since May 2022.

"That's over $7000 of extra spending for every Australian."

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