Do not despair, mortgage holders of Australia: we didn’t get a rate cut on Tuesday, but they are still coming.
The Reserve Bank board showed it doesn’t give a fig about popular opinion and held its cash rate target at 3.85% at its July meeting.
For those who were paying attention, it was a major surprise as almost every economist was tipping a cut, and financial markets had priced it in as a done deal.
This was how it had been duly reported leading up to the decision, and Aussies could have been forgiven for already planning what they would do with the extra cash when their interest payments went down.
Jim Chalmers was disappointed on behalf of indebted homeowners.
Quick to claim credit for inflation coming back down, he was lightning fast to make it clear rates have nothing to do with him.
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“This is not the outcome that millions of Australians were hoping for, or the outcome that economists or the market was expecting,” the treasurer noted on Tuesday afternoon.
And the board’s decision was close.
We know, for the first time, how the nine board members voted: six in favour of holding the cash rate, and three for a cut.
We don’t know who voted for what – Michele Bullock, the RBA governor, refused to say at her post-meeting press conference.
But Bullock was more than happy to flag that, barring a surprise inflation report in three weeks’ time, rate cuts are a question of when, not if.
She explained the divided board opinion by saying “the difference in perspective was a matter of timing, not so much the direction of interest rates”.
If that wasn’t clear enough: “The direction is down, but it’s cautious.”
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So, was there really a good reason to hold fire on Tuesday?
Bullock couldn’t really mount a convincing argument, especially to a homeowner struggling to pay their bills.
“I understand that households with mortgages are very keen to see interest rates decline because it helps them with their cashflows. So I’m very conscious of that,” she said.
“I’m also really conscious that we don’t want to end up having to fight inflation again. We want to make sure we’ve nailed it.”
The argument that inflation might suddenly pick back up again sounds well past its use-by date, given where inflation is and has been heading, the weak start to the year for the economy, and soft household spending.
Not to mention the rolling disaster that is Trump’s trade war.
Still, holding rates for another month or so is no calamity. The direction of travel is clear, we might just take a bit longer to get there.
