Australians could be looking at extended relief from rising interest rates after the Reserve Bank paused mortgage bill hikes for the second straight month.

The cash rate target will remain on hold at a decade-high 4.1 per cent in August after central bankers opted to sit on their hands again amid fresh signs inflation is cooling faster than anticipated as the economy slows.

It’s the first time the RBA has paused for two straight months since its record-shattering cycle of rate rises began in May last year.

Since then more than $1100 has been added to monthly repayments on a typical $500,000, 25-year home loan, squeezing millions of families.

However, Reserve Bank governor Philip Lowe warned that the bank was not necessarily finished with interest rate hikes.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon the data and the evolving assessment of risks,” Dr Lowe said.

‘They’re probably done’

But BIS Oxford head of economic forecasting Sean Langcake suspects that might be the worst of it for the time being, unless inflation surprises on the upside later this year.

“I’d be surprised if at any meetings for the rest of the year there was a more compelling case to raise rates than there was today,” he said.

“For that reason, I think they’re probably done.”

ANZ chief economist Adam Boyton also thinks an extended rate pause is now likely.

He said the RBA’s monthly statement now contains guidance that rate calls will “depend upon the data and the evolving assessment of risks”, which suggests further rate hikes will be more dependent on the data.

“We see nothing in today’s decision or statement to push us off our view that the RBA is now on an extended pause as it examines how the 400 basis points of monetary tightening to date washes through the economy,” Mr Boyton said.

The prospect of an extended rate pause will be welcome news for many home owners, with more than a million facing mortgage stress because of the RBA’s 12 previous rate hikes since May 2022.

‘Inflation has peaked’

Deloitte Access Economics partner Stephen Smith said the decision to pause rates was the right call amid signs the economy is slowing rapidly.

“Retail sales, consumer spending and dwelling investment are contracting even though the full impact of the 400 basis points of interest rate hikes seen since May 2022 has not yet been felt,” Mr Smith said.

“In addition, inflation has peaked and is retreating, wage growth is not excessive despite the tight labour market, and inflation expectations are contained.”

Mr Smith said there was still a risk that high inflation would persist in Australia, but that the unwinding of supply pressures on goods prices would help to reduce the rate of price growth over the next year or so.

“There is still work to be done to combat inflation, but that can no longer be achieved through higher interest rates,” he said.

EY chief economist Cherelle Murphy said it was possible the rate pause would be maintained, but the RBA will need to see “steady progress” on inflation.

That raises the prospect that an upside surprise later this year may stoke further action, with central bankers still concerned about rising services prices in response to higher wages and lacklustre productivity.

“If productivity doesn’t pick up from the pandemic-induced slowdown, the Reserve Bank’s inflation forecasts will not be met, and further rate hikes will likely be necessary,” Ms Murphy said.

Timeline pushed back

Curiously, Dr Lowe’s statement on Tuesday afternoon implied the bank is preparing to push back its timeline for returning price growth to its 2 to 3 per cent target, allowing more time for inflation to fall.

Dr Lowe said the headline Consumer Price Index (CPI) is now slated to reach the target in “late 2025” instead of the earlier mid-2025 forecast.

The RBA will publish updated forecasts later this week.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” Dr Lowe said, in his interest rates statement on Tuesday.

“In light of this and the uncertainty surrounding the economic outlook, the board again decided to hold interest rates steady this month.”