In a move that has brought a collective sigh of relief, the Reserve Bank has made the decision to hit the pause button on further Official Cash Rate (OCR) rate hikes, after 12 consecutive rises. This has brought a sense of stability to households across the nation. The cash rate has stabilised at 5.5 per cent and is predicted to remain this way for the foreseeable future. The monetary committee has announced that to combat inflation, the OCR will remain restrictive. This has a myriad of implications for households.
Homeowners with variable or floating-rate mortgages can expect their interest rates to remain unchanged for the time being. This decision provides stability in mortgage payments, allowing households to plan their finances more effectively. However, this change is unfavourable for those on fixed-rate mortgages. Following recent changes to the OCR average mortgage rate has risen from three per cent in early 2022 to approximately five per cent as homeowners transitioned from fixed rates. This indicates those on fixed-rate mortgages will likely see their rates increase when their current fixed term expires and they switch to higher market rates.
The stability in interest rates is expected to contribute to a more balanced housing market outlook, as the Reserve Bank notes that house prices have stabilised in recent months. However, the downward pressure on housing demand from higher interest rates will likely continue. This is promising news for potential homebuyers; as competition eases and the market offers more affordable housing options. With this stabilisation, existing homeowners may experience slower price growth, impacting their equity and wealth accumulation.
The Reserve Bank acknowledges the implications of an economic downturn, including slower consumer spending growth, declining residential construction activity, weakening investment intentions, and indications showing that labour market pressures are easing and a decrease in job vacancies. Such conditions impact households nationwide, leading to financial strain, reduced purchasing power, and heightened uncertainty.
The Reserve Bank's decision to pause the OCR brings a sense of relief and stability to households, offering a much-needed respite from the consecutive rate hikes. This pause allows homeowners to plan their finances more effectively and enable potential homebuyers to enter the market as a more balanced housing market outlook emerges. While the challenges of an economic downturn are persistent, the Reserve Bank's commitment to battling inflation demonstrates a proactive approach. There is optimism for a gradual recovery and a return to stronger economic conditions. The pause in the OCR signifies a deliberate strategy to support households, foster financial stability, and lay the foundation for a more prosperous future.