Cash Rate Decision August 2024: RBA Leaves Cash Rate Unchanged At 4.35%

Cash Rate Decision August 2024: RBA Leaves Cash Rate Unchanged At 4.35%

The Reserve Bank of Australia has decided to leave the cash rate target unchanged at 4.35% during its August 2024 meeting.

Why Did The RBA Hold The Cash Rate In August 2024?

The decision was influenced by several key factors:

• Persistent Inflation: Inflation has come down substantially from its peak in 2022, although it remains above the target range of 2-3%. The underlying inflation rate, measured by the trimmed mean CPI, is 3.9% over the year to June, which is down from 4.0% at the end of March.
• Economic Uncertainty: The economic outlook is highly uncertain. Despite some signs of easing, inflation remains high, and the labour market is tight. Wage growth, although it has peaked, continues to be substantial, contributing to ongoing inflationary pressures. The RBA stated, “The process of returning inflation to target has been slow and bumpy.” Recent data reflects this mixed picture, with slow GDP growth, a rising unemployment rate, and reports of businesses under pressure. Additionally, high labour costs and revisions to consumption and saving rates suggest there are upside risks to inflation. The RBA also pointed out that household consumption might recover more slowly than expected, potentially leading to continued subdued output growth and further deterioration in the labour market.
• Global Factors: International factors add to the uncertainty. The outlook for the Chinese economy has weakened, commodity prices are fluctuating, and geopolitical tensions are affecting supply chains.

The RBA said it would continue to monitor the situation closely. “Returning inflation to target within a reasonable timeframe remains the board’s highest priority,” the RBA affirmed.

What Do Our Experts Say About The RBA’s Decision?

Alan Hemmings, CEO of Home Loan Experts, shared his insights on the RBA’s decision.

“Although the RBA left the cash rate unchanged, the board is still watching very closely what happens in the economy. Inflation edged lower, but it is still well above the preferred band of 2-3%. There are concerns about increasing costs across a range of products and services. Housing costs continue to increase and this is putting upward pressure on inflation. The Reserve Bank will want to see some ongoing downward movement in inflation to make sure it does not have to increase the cash rate again. Even if the RBA continues to retain a stable cash rate, it is expected it will be next year before it looks to cut interest rates.”

So, what does it mean for homeowners?

“For customers, the outcome is positive, although some caution is still warranted,” Hemmings said. It may be that we are at the top of the interest-rate cycle, but although this means no increases to mortgage repayments, inflation still means other costs are rising. As always, we ask existing customers to continue to review their home loan rates and speak to their broker, as there may be better interest rates available. With costs increasing, if clients are struggling to meet their repayments it is best they be on the front foot and talk to their broker, who can guide them on what to do. For clients looking to get into property, speaking to a broker to maximise borrowing potential and get guidance on first-home buyer schemes is vital in this market.”

How Does The Cash Rate Affect My Interest Rate?

Lenders add a margin to the official cash rate to determine the variable interest rate they offer to customers. So if you have a variable interest rate, it will almost certainly go up with any cash rate increase.

You can use our repayment calculator to find out what your repayments should look like whenever your interest rate goes up or down.