RBA holds cash rate at 4.35% as homeowners hoard cash in offsets

The Reserve Bank of Australia (RBA) board has declared the cash rate will remain at a 12-year high after emerging from its two-day meeting this afternoon.

The decision was widely anticipated, with the Australian economy continuing to be more resilient than once expected.

"The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth," the RBA board's latest statement reads.

"The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out."

The central bank is ultimately hoping that interest rate pain will abate inflation by slowing household spending, but the data flow suggests mortgage holders are still holding up.

A record $271.7 billion was kept in home loan offset accounts in the March quarter - a 10% year-on-year increase, according to APRA.

And while repayments on $14.7 billion worth of home loans have been missed by 30 to 89 days - up 40% year-on-year - that's roughly in line with pre-pandemic levels.

That might be a depiction of how home loan borrowers are adjusting their finances to better suit the current high-interest rate environment.

The employment market is also continuing strong, while the most recent quarterly inflation figures surprised on the upside, coming in at 3.6% annually.

That's lower than its peak of 7.8% in late 2022 but 60 basis points above the top of the RBA's 2% to 3% target range.

But borrowers shouldn't worry yet, PropTrack director of economic research Cameron Kusher assures.

"Despite higher-than-expected inflation early in 2024, weak retail sales, slowed economic growth and low consumer sentiment persist," he said.

"While inflation has not fallen as quickly as expected, the board anticipates a further decline in inflation by the end of the year."

Hopes of a 2024 interest rate cut might be dashed, however.

ANZ was the first of the big four banks to readjust its forecast for the first interest rate cut, pushing it back to February 2025.

Previously, ANZ was in step with peers CommBank, NAB, and Westpac in forecasting a November 2024 rate cut.

RBA governor Michele Bullock will front a press conference at 3:30pm AEST on Tuesday to provide more insight into the latest cash rate decision.

Housing shortage offsets impact of higher rates on property prices

Property prices have likely defied the expectations of anyone who believed higher interest rates would strangle the market.

That's largely due to the continued shortage of available housing.

"Housing demand remains strong due to population growth, tight rental markets, resilient labour market conditions and home equity gains," Mr Kusher said.

"Building activity is at decade-low levels, exacerbated by a lack of new construction, which is creating a chronic shortage of housing.

"The imbalance between housing supply and demand has offset the higher interest rate environment and deterioration in affordability, fuelling home prices and rents."

Property price growth has been slowing in recent months, but not by so much that would suggest house prices could come down from record highs soon.

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_{Image courtesy of the RBA}