The Reserve Bank has given mortgage borrowers a reprieve, at least temporarily, by leaving interest rates on hold at Tuesday's board meeting.
After 10 consecutive rate rises, the RBA opted to wait and see how the economic data plays out, amid early signs that the increase in rates so far is starting to weigh on consumer spending and lower inflation.
However, RBA governor Philip Lowe was offering no assurances that interest rates would not rise again.
"The board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target," he said in his post-meeting statement.
"The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty."
Tuesday's decision leaves the RBA's cash rate target at 3.6 per cent, which is still the highest level since May 2012.
Official interest rates have risen 3.5 percentage points from the pandemic emergency low of 0.1 per cent.
RateCity said those rate increases had already added almost a thousand dollars a month to repayments on a $500,000 principal and interest loan with 25 years remaining.
Temporary pause could become 'more permanent'
Mr Lowe said the board had taken into account the delay with which interest rates affect the economy, given that many borrowers have not yet seen their minimum repayments include the February and March rate hikes.
"There is further evidence that the combination of higher interest rates, cost-of-living pressures and a decline in housing prices is leading to a substantial slowing in household spending," the RBA governor observed.
"While some households have substantial savings buffers, others are experiencing a painful squeeze on their finances."
Indeed Asia-Pacific economist Callam Pickering, who used to work at the Reserve Bank, said he expects the Australian economy to slow considerably over the second half of the year making further rate rises unnecessary.
"This is centred on the belief that household conditions will deteriorate due to the combination of much higher mortgage repayments, falling asset prices and the unprecedented decline in inflation-adjusted wages.
"This is a recipe for an economic slowdown if ever I've seen one.
"[The RBA board] are likely to take the next month or two, at the very least, to assess how those earlier rate hikes have impacted the economy.
"We think the impact will be large enough for this temporary pause to become a more permanent one."
Mr Lowe also acknowledged the risk that financial problems for some US and European banks could spill over globally.
"These problems are also expected to lead to tighter financial conditions, which would be an additional headwind for the global economy," he warned.
The Commonwealth Bank's head of Australian economics Gareth Aird is still forecasting one more rate rise next month to take the cash rate to a peak of 3.85 per cent, but said there now appears to be a strong chance that will not happen.
"Forward guidance has further shifted in a dovish direction and 3.60 per cent may be the terminal rate in this cycle," he wrote in a note.
"The budgets of many home borrowers will be under considerable strain over the coming year.
"We continue to expect 50 basis points of rate cuts in the fourth quarter of 2023 and a further 50 basis points of easing in the first half of 2024."
