The Reserve Bank has left interest rates on hold amid signs that growth in the economy has dramatically slowed down following 13 interest rate rises since May 2022.

The cash rate remains at 4.35 per cent, and while the central bank gave no clear indication of where it was headed next, saying it was "not ruling anything in or out", many economists are predicting the RBA will start cutting interest rates in the second half of this year as inflation continues to moderate.

Some have pushed out their forecasts for rate cuts to November. 

Based on an average variable rate of 6.39 per cent for a loan over 25 years, the impact of 13 rate hikes since May 2022 has taken monthly repayments on a $500,000 loan up by $1,210 a month, and those on a $750,000 loan up by $1,815 a month.

If the RBA does cut the cash rate later this year, and the banks pass this rate cut on in full, then someone with a $500,000 mortgage with 25 years remaining would see their monthly repayments go down by $76 in the first cut and by $152 if there were two cuts.

While there is no certainty about when interest rates may fall, there are fears the impact of previous rate rises may slow down the economy more than anticipated.

The Reserve Bank, the federal government and Treasury have spent much of the past two years focused on fighting inflation, but now the challenge is to ensure that growth doesn’t slow down so forcefully that it tips Australia into a recession.

On a per person basis – that is accounting for population growth - the economy has plunged deeper into a per-person recession. 

RBA says it's 'not ruling anything in or out'

In its statement today explaining why the board decided to leave the cash rate unchanged, the RBA noted "inflation continues to moderate but remains high".

It said "while there are encouraging signs that inflation is moderating, the economic outlook remains uncertain" and the "Board needs to be confident that inflation is moving sustainably towards the target range".

To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

It said the central bank's forecasts were for inflation to return to the target range of 2 to 3 per cent in 2025, and to the midpoint in 2026.

"The path of interest rates that will best ensure that inflation returns to target in a reasonable time frame remains uncertain and the Board is not ruling anything in or out."

"The Board will rely upon the data and the evolving assessment of risks," it said, adding that it "remains resolute in its determination to return inflation to target".

NAB's head of market economics, Tapas Strickland, said the statement read "less hawkish" and the RBA was unlikely to move to cut rates until later in the year.

NAB expects the first rate cut in November 2024, with a gradual cutting cycle to 3.1 per cent by end 2025.

"There was nothing in today’s post-meeting statement to suggest a real possibility of a rate cut in first quarter 2024, with a late second quarter 2024 cut more realistic," he said.

He said the RBA was indicating an "optionality, rather than an outright bias to hike".

UBS economists also don't expect the RBA will start cutting until November.

"UBS also still expect the first rate cut of 25 basis points in November, followed by a relatively slow easing cycle of 25 basis points per quarter, to 3.10 by the end of 2025," UBS said in an economic note released after the rates decision.

"This reflects our view that domestic/wage inflation will be somewhat sticky amid ongoing booming public demand, large increases in wages for the regulated and public sectors, likely significant additional fiscal stimulus .. due around mid-2024 plus large household tax cuts from July."

Signs of a slowing economy

The RBA said there were indications of a slowing economy, but that "inflation is still weighing on people's real incomes and household consumption growth is weak, as is dwelling investment."

However, higher interest rates were "working to establish a more sustainable balance between aggregate demand and supply in the economy".

It said, "real incomes have stabilised and are expected to grow from here, which is expected to support growth in consumption later in the year."

Services price inflation would decline gradually as demand moderates, while unemployment would increase.

"Domestically, there are uncertainties regarding the lags in the effect of monetary policy and how firms' pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while the labour market remains tight," it said.

"Accordingly, conditions in the labour market continue to ease gradually," it said.

Wages growth, it said, appears to have peaked "with indications it will moderate over the year ahead".

There was still also a high level of uncertainty around the outlook for the Chinese economy and the implications of ongoing conflicts in Ukraine and the Middle East.