The Reserve Bank of Australia (RBA) and its new leader, Governor Michele Bullock, have decided to keep things steady with the country’s key interest rate, keeping it unchanged while they see how previous rate hikes affect the economy.

Simply put, the RBA has kept its cash rate at 4.1% for four consecutive meetings in Sydney. The cash rate affects the interest rate that banks offer to their customers, so holding it steady means no changes to what people and businesses pay on new loans. The decision aligns with what many economic experts and markets had anticipated, showing that they're waiting for a clear signal from economic data to make their next move.

Governor Bullock, who’s been in charge for just over two weeks, said, “Some additional adjustments in our financial policy might be needed to make sure inflation comes back to our target range, but we’ll be watching the data and risks closely to determine that.”

The RBA is moving a bit more cautiously compared to other major global banks, considering the rapid impact of any changes on Australian borrowers, who mainly deal with variable or 'floating' rate mortgages.

Recent reports indicate an increase in the monthly Consumer Price Index (CPI), which measures inflation, despite Australia’s job market continuing to perform strongly, much like in other developed countries.

With a cautious eye on monetary policy, the RBA acknowledges the lingering effects of home loans fixed at historically low rates during the pandemic.

Now, considering that over 90% of new home loans in Australia are on floating rates, the effective mortgage rate has moved up to 5.6% from 2.75%. For context, in the U.S., borrowing costs have risen slightly to 3.6% from 3.3% during the current cycle.

Highlighting the need for a cautious approach, Australian households are among the most indebted in the developed world, with debt nearly double their income.

International concerns are also on the radar, particularly those involving China — Australia’s top trading partner. China is currently navigating through its own housing crisis and trying to hit its economic growth targets.

Even with all of this, economists think the RBA will need to increase borrowing costs at least one more time to 4.35%. They point to Australia's super-low unemployment rate of 3.7% and persistent inflation as the main reasons. The CPI isn't expected to get back to the RBA’s target range of 2-3% until late 2025 — and if it looks like it will take even longer, that could prompt a response from the bank.

The RBA emphasizes that navigating the economy to a stable position is a "narrow" path, but it's committed to doing what's necessary to guide inflation back to its target. A boost in population growth has been helpful, providing a buffer against labor shortages and adding extra demand in the economy.