RBA holds line with rate pause

The Reserve Bank of Australia has held the cash rate steady at 4.35 per cent following its second board meeting of the year, its third consecutive pause in the current cycle.

In a widely expected move which will be welcomed by mortgage holders, the RBA opted to pause for the second time this year.

The RBA's monetary policy decision statement flagged that while inflation continued to moderate, it remained high, and the economic outlook for the country was uncertain. 

“While there are encouraging signs that inflation is moderating, the economic outlook remains uncertain," the board said. 

“The December quarter national accounts data confirmed growth has slowed.

“Household consumption growth remains particularly weak amid high inflation and the rise in interest rates.

“After recent declines, real incomes have stabilised and are expected to grow from here, which is expected to support growth in consumption later in the year.”

The board said it would not rule anything out in its pursuit to return inflation to within the 2-3 per cent target mark. 

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out,” it said.

The decision means the cash rate has risen just once since the beginning of the financial year, with a 0.25 basis point increase in November the sole movement either way.

The relative stability comes off the back of an unprecedented run of 12 increases across 13 meetings from May 2022 to June of last year, have stretched household budgets adjusting from the record low 0.1 per cent cash rate applied by the RBA from the end of December 2020 through to April 2022.

The RBA next cash rate decision will be announced on May 7.

Tracking responses

The RBA's delivery of a further pause was hardly surprising to those in the business of forecasting.

PropTrack senior economist Eleanor Creagh said it was likely the cash rate had peaked in its current tightening cycle, and expected the decision to maintain the confidence of both property buyers and sellers. 

“Looking ahead, the next move for interest rates is likely to be down,” she said. 

“Despite a weaker outlook for the economy, the positive tailwinds for housing demand and a slowdown in the completion of new homes are likely to offset the impact of reduced affordability and a slowing economy.

“As a result, prices are expected to lift further in the months ahead, particularly while the expectation remains that interest rates will move lower in late 2024.”

 Deloitte Access Economics partner Stephen Smith said the relief offered by the rates decision could be temporary. 

“Relief will be tempered as the board reiterated its position that it is not ruling anything in or out, hedging its bets as the outlook evolves and new data emerges over the months ahead,” he said.

“Deloitte Access Economics remains of the view that interest rates have peaked and that rate cuts will need to occur from September of this year, with the focus of Australian economic policy likely to shift to supporting growth.”