Rates on hold as mortgage-belt spared

Relief for the mortgage belt as the RBA keeps interest rates on hold

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Relief for the mortgage belt as The Reserve Bank of Australia (RBA) has kept interest rates on hold, writes The Motley Fool.

It was likely a close-run decision, but in the end, the RBA did what most people expected them to do, keeping interest rates on hold at 4.75%.

You can feel the large sigh of relief from mortgage-holders across the country. Already faced with rising energy and grocery prices, the last thing they needed was higher mortgage repayments. Phew.

But the relief may be short-lived. Inflation is running at the top end of the RBA's 2% to 3% inflation target. In fact, data published this week by the TD Securities-Melbourne Institute pointed to annual inflation running at 3.2% in July.

Spared for how long?

If inflation does stay at these elevated levels, the RBA will have no choice but to increase interest rates. We may have been spared this month, but perhaps not for too much longer.

Here at The Motley Fool, we have a bias towards the RBA leaving interest rates on hold for an extended period.

And, we wouldn't even be surprised if the next move was down, not up.

Falling house prices to save the day

RP Data-Rismark recently said home prices had fallen 2% in the year to June. Compounding the woes, the Housing Industry Association (HIA) said new home sales posted their biggest monthly drop in five years in June, sinking 8.7%.

It doesn't paint a pretty picture.

House-prices, and the share market, have a huge 'wealth effect' on the population.

It's no coincidence that in the run-up to the GFC, when house prices and the share market were booming, so too was our economy. Back then, in the good old days, our economy could handle a cash rate of 7.25%.

Remember that? How quickly we forget.

Today, the mortgage belt would scream blue-murder if the cash rate was above 5%, let alone above 7%.

Three letters explain the problem – GFC.

Weak at the knees

As for the share market, along with house prices, it keeps edging lower, and lower, and lower, and lower.

Year to date (YTD), it's off 6.5%, making the fall in house prices look like a picnic by comparison.

Look away now if the sight of red numbers makes you squeamish …

Company Share Price Change YTD
BHP Billiton (ASX: BHP) -8.5%
ANZ (ASX: ANZ) -10.8%
Woodside Petroleum (ASX: WPL) -9.9%
CSL Limited (ASX: CSL) -15.4%
Suncorp Group (ASX: SUN) -14.1%
Qantas Airways (ASX: QAN) -27.4%
Toll Holdings (ASX: TOL) -20.9%
Caltex Australia (ASX: CTX) -25.8%

Source: Capital IQ, a division of Standard & Poors

Those are pretty significant falls for some of Australia's largest and most popular companies.

In the face of these headwinds, despite the inflation data saying otherwise, how could the RBA raise interest rates?

No free lunches

Can you see where we're coming from when we say we have a bias towards interest rates remaining on hold, or even cut?

Struggling working families will welcome lower interest rates.

But there is a cost. Lower rates come with higher unemployment and a generally slower economy.

The best we can hope for is the status quo. Australia hasn't had a recession for 20 years. We're not in one now, but to some it must feel like it.

Like it or not, we've just got to tough it out. There 'aint no free lunches here. They all ran out in September 2008 when the GFC hit.

Free report: Read this before the stock market crashes

Of the companies mentioned, Bruce Jackson has a beneficial interest in ANZ and BHP. The Motley Fool's disclosure policy is doing it easy.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »