Lowe set for final rates call

With inflation easing and consumer spending deteriorating, markets anticipate the cash rate will be kept on hold at 4.1 per cent for the third straight month.

Despite the RBA holding rates at its July and August meetings, new analysis from PropTrack showed that mortgagors were finding it increasingly difficult to meet repayments.

“Servicing a mortgage is close to as hard as it has ever been, just below the peak reached in 1989,” the PropTrack report stated.

Separately, fresh ABS data released on Monday – that showed company profits had plunged in the June quarter and household spending also slumping in July – firmed economist expectations that the Reserve Bank would keep rates on hold remained unchanged.

Indeed, the new figures were likely further vindication that the RBA’s strategy to pursue the most aggressive monetary tightening cycle in a generation was successfully acting as a handbrake on economic activity.

Company profits in the mining sector fell 21.3 per cent, or $11.6bn, in the June quarter, according to the latest business indicator data from the ABS.

Outside the mining sector, company profits fell by a smaller 5 per cent compared to the March quarter. Significant declines were recorded in the accommodation and food sectors, down 23.6 per cent, and manufacturing, down 8.6 per cent.

The slide in mining profits was the key driver, contributing four‑fifths of the overall decline in quarterly profits.

Just a year ago, company profits were up 28.6 per cent in the year to June 2022.

“The resources sector has seen a period of strong profits because of elevated commodity prices since the war in Ukraine. But commodity prices over the June quarter declined substantially because of softening global demand and a deteriorating outlook for China,” Commonwealth Bank economist Stephen Wu said.

Sales figures across the economy were also soft, declining by 0.3 per cent, as souring consumer sentiment and weak consumer demand weighed on domestic demand.

In separate data, household spending recorded an overall decline in June as the continued cost-of-living crunch and high interest rates squeeze family budgets.

Discretionary purchases in the June quarter recorded a 3.3 per cent drop, with clothing and footwear falling by 7.5 per cent, furnishings and household equipment by 7.9 per cent, alcohol and tobacco by 4 per cent and recreation by 3.9 per cent.

Households with an average mortgage size of $585,000 are now paying $1,415 more every month than they were before the RBA started its current tightening cycle in May 2022.

A surprise rate hike of 25 basis points would increase average monthly repayments by another $96.

Current deputy governor Michele Bullock, who was announced as Lowe’s successor in July, will take the reins as Australia’s top central banker from September 18.

Originally published as Outgoing RBA boss Philip Lowe to make final rates call as interest rates, inflation bites Aussies