Millions of Australian families have been spared a Christmas interest rates hike after the Reserve Bank paused at its final meeting of 2023.

Central bankers opted to wait for fresh data on inflation in the new year at a meeting on Tuesday, deciding that the cash rate target would be put on ice at a decade-high 4.35 per cent until at least early February.

RBA governor Michele Bullock said “limited” economic data since rates rose in November was “in line with expectations”, allowing for a pause.

“Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labour market,” Bullock said on Tuesday afternoon.

Most economists had expected a pause in December following the RBA’s hike last month, with inflation still easing despite a hotter than expected result for prices over the September quarter.

Interest rates pause an ‘early Christmas present’

Treasurer Jim Chalmers welcomed the pause on Tuesday, saying it will be met with “sighs of relief right around Australia”.

“The last thing that people needed at Christmas time was another rate rise,” he said.

Opposition treasury spokesman Angus Taylor said the pause wouldn’t make the lives of struggling Australian families any easier.

“They are struggling, let’s be clear, about making ends meet. Labor’s homegrown inflation is a tax on everything,” he said.

“This will be a grim Christmas for many Australians.”

Stephen Smith, a partner at Deloitte Access Economics, said the RBA has delivered an “early Christmas present” to families with mortgages.

“Further increases in interest rates are not needed, though mortgage holders will need to be wary of an increasingly hawkish RBA ahead of the next interest rate decision in February 2024,” he said.

Households will be spared another $78 increase in monthly repayments on a typical $500,000, 25-year home loan that would have occurred had the RBA hiked interest rates again today.

But the more than $1200 in repayment increases since central bankers first began hiking rates in May 2022 are still squeezing budgets, with family Christmas spending set to be constrained.

Households still ‘doing it tough’

Indeed APAC economist Callam Pickering said Australian households are “doing it tough” heading into Christmas, but that the RBA will retain its bias towards increasing interest rates until domestic inflation eases.

“Households are relying on savings to maintain their consumption patterns, following the largest decline in real household disposable income in the past four decades,” he said.

A consumer retreat is exactly what the RBA is trying to cause with rate hikes because it’s harder for businesses to pass on higher prices when consumers are buying fewer goods and services.

But whether the slowdown is enough to push inflation back to the target band within the RBA’s desired horizon (late 2025) remains to be seen though, with the door open to hikes in 2024.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks,” Bullock said.

December-quarter inflation data to be released on January 31 will be the next big clue for the RBA in determining whether inflation has eased fast enough to spare families higher rates.

Central bankers are projecting the headline CPI will fall to 4.5 per cent annually. That would be down from 5.4 per cent over the September quarter.