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The Reserve Bank has delivered an early Christmas present to borrowers, holding the official interest rate at 4.35 per cent at its last board meeting of the year.
Almost all economists and financial markets expected the board to keep the cash rate steady after monthly inflation fell sharply through October and amid signs previous rate rises are starting to hit the jobs market.
The RBA was widely expected to keep interest rates on hold in its December board meeting.Credit: Reuters
The RBA board lifted official interest rates by a quarter of a percentage point in November to rein in stubbornly high inflation.
Bank governor Michele Bullock said later in the month that inflation was homegrown, driven by strong demand for everything from dining out to sport, hairdressers and dentists.
In total, the board increased rates by 1.25 percentage points this year, adding almost $500 a month to the repayments on a $600,000 mortgage.
Household spending has continued to slow as people face ongoing pressure from high inflation and interest rates.
Australian Bureau of Statistics figures show household spending in October was 2.7 per cent higher than a year ago. Spending on discretionary items was down 2 per cent on October last year, while spending on essentials rose 7 per cent.
ABS head of business statistics Robert Ewing said the moderate October increase followed a relatively steady downward pattern since late last year.
“Less spending on discretionary services such as eating out, accommodation, and recreation and cultural services all contributed to the slowdown,” Ewing said.
The federal government has been under increasing pressure to help households struggling with cost-of-living pressures, but Finance Minister Katy Gallagher warned people not to expect big spending measures in its mid-year economic update next week, as the government is also working to fight inflation.
“Obviously, there’ll be some spending in it, but we have $23 billion worth of cost-of-living measures being [rolled] out through the economy at the moment,” she said on Tuesday morning.
“We are very mindful of the need to ensure that the decisions we take don’t add to the inflation challenge and put further pressure on interest rates. So, we’re very conscious of that.”
On Monday, shadow treasurer Angus Taylor said the expectation from economists was that interest rates would remain higher for longer, which was causing Australian households “enormous pain”.
“Areas like where we are today, enormous mortgage stress is being felt, and there’s no sign of light
at the end of the tunnel,” he said from the southern Sydney suburb of Engadine.
“There is much government can do, but this government has the wrong priorities. It’s making bad decisions and Australians are paying a very high price for that.”
Tuesday’s meeting was the last single-day meeting for the Reserve Bank board, which, from February, will shift to an extended two-day discussion followed by a press conference to explain its thinking about interest rate movements and the state of the economy.
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