Reserve Bank hits pause on interest rates

Mortgage holders can breathe a sigh of relief as the Reserve Bank keeps interest rates on hold.

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 pause is the second in 14 meetings, with the central bank also leaving rates unchanged in April.

But RBA governor Philip Lowe said there might need to be further rises if the situation calls for it.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time-frame, but that will depend upon how the economy and inflation evolve,” he said.

“The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the economic outlook and associated risks.”

Economists were divided over the RBA’s most likely move in July following a mixed bag of data for the month.

The monthly consumer price index dropped sharply in May, but the underlying numbers were less encouraging.

Board members also weighed up signs of strength across the jobs market, a fairly resilient consumer sector and a recovering property market, which is thought to make people feel wealthier and spend more.

The 400 basis points of interest rate hikes so far have been felt keenly by borrowers.

The aggressive tightening has added upwards of $1000 to monthly repayments on the standard variable rate home loan compared to April last year, before interest rates started going up.

By Poppy Johnston in Canberra