ResidentialLindsay SaundersTue 11 Aug 26
Rates Held as Cooling Housing Sector Adds Pressure to Economy
The Reserve Bank of Australia has left the cash rate unchanged at 4.35 per cent, keeping borrowing costs elevated as a cooling housing market adds to pressure on the economy.
The August decision is the second consecutive meeting at which the RBA has held rates, following three increases earlier this year that lifted the cash rate from 3.60 per cent to its current level.
The decision was widely expected, with economists shifting away from a further increase after June-quarter inflation data showed headline inflation easing to 3.8 per cent and trimmed-mean inflation holding at 3.6 per cent.
For the property sector, the hold comes as housing conditions weaken.
National home values fell 0.7 per cent in July, according to Cotality data, the sharpest monthly decline since late 2022.
The downturn adds another consideration for the RBA as it weighs persistent inflation against signs that higher rates are beginning to slow demand.
The impact is being felt across development and investment markets, where elevated financing costs continue to weigh on project feasibility.
While a hold removes the immediate threat of another increase in debt servicing costs, it does not signal that monetary policy is about to ease.
The RBA is expected to remain focused on inflation, employment and household spending before considering any move on rates.
For developers, rate stability could provide greater certainty for projects and transactions, but it does little to resolve the broader feasibility pressures created by high construction, land and financing costs.
Higher borrowing costs have also continued to affect buyer capacity, putting pressure on some housing markets even as supply remains constrained.
The RBA’s latest forecasts and commentary will be closely watched for clues on whether 4.35 per cent represents the peak of the current tightening cycle.
Chances of rate hike grow
REA Group senior economist Angus Moore said the rate pause came after a better-than-expected outcome for inflation over the June quarter, giving the RBA a bit of comfort that inflation has not picked up as much as they were fearing.
“Even so, inflation remains too high, and the RBA is focused on getting underlying inflation back inside its target band. That means there’s still a chance we could see another rate hike later this year,” he said.
“Home prices and housing market conditions are expected to remain soft over the back half of this year, as the effect of the three hikes earlier in the year, and the tax changes in the Budget, continue to flow through.
“But we’re likely to see a turning point late this year or early next, as the cash rate stabilises and the uncertainty from the Budget washes out.”
Herron Todd White chief economist Cameron Kusher said that “although most people think that the rate hiking cycle may have peaked, if the war in the Middle East continues and inflation persists, I still see a risk of an increase in rates later this year”.
“Furthermore, I think we’re still at least 12 months away from the first-interest rate cuts,” he said.
“For mortgage holders, the decision to keep rates on hold offers them a reprieve however, they should remain vigilant that inflation remains too high and there is a possibility that interest rates will have to rise further to curtail these pressures. Not to mention that any rate relief still appears to be some way off.
“Steady rates are likely to provide some certainty for buyers and sellers who are already facing a challenging housing market with a high volume of stock for sale and buyer numbers thinning out.”
