RBA decided to keep the cash rate at March board meeting

The official cash rate will stay put at 4.35%, marking a 12-year high, for at least seven more weeks. The Reserve Bank Board decided to keep interest rates steady during its March meeting.

Since the last meeting in February, the central bank has analyzed various economic data. January’s inflation rate was 3.4%, according to the Australian Bureau of Statistics (ABS). Unemployment rose slightly to 4.1% in January, and the economy only grew by 0.2% in the December quarter, based on quarterly GDP figures.

Although inflation has dipped recently, it remains a concern for the Reserve Bank Board.

“While recent data show a decrease in inflation, it’s still high,” stated the RBA.

The Board believes it will take some time for inflation to reach the target range consistently. The best approach to managing interest rates for a timely return to target inflation remains uncertain.

Could interest rates drop this year?

While the RBA Board is taking its time to assess the situation, many experts outside the bank predict a rate cut is on the horizon—it’s just a matter of when.

According to a Finder survey conducted before the recent meeting, 43% of experts expect a rate cut before September, 32% predict a cut between September and the end of the year, and 25% think there won’t be a cut until at least 2025.

James Morley, a survey respondent and macroeconomics professor at the University of Sydney, believes that declining growth, rising unemployment, and improving service inflation might prompt the Reserve Bank Board to consider a rate cut later in the year.

The Reserve Bank of Australia (RBA) is watching services inflation closely. They’re unlikely to lower interest rates until they see services inflation decrease and observe rate cuts in the United States and elsewhere.

I think if economic conditions weaken and inflation improves, the RBA might start cutting rates in the second half of 2024, perhaps at the September meeting.

Australia’s biggest banks are also predicting rate cuts in the latter part of the year.

Gareth Aird, head of Australian economics at the Commonwealth Bank, believes rates will start dropping in September. The Commonwealth Bank expects a total reduction of 75 basis points in 2024 and another 75 basis points in the first half of 2025.

Westpac shares a similar outlook, suggesting rates will remain steady until at least September. They believe the RBA will have a clearer picture of the inflation outlook by then.

Households with mortgages are facing challenges, even though there’s no immediate hike in interest rates. Many families are feeling the strain as a larger portion of their income goes towards mortgage payments.

According to recent research from Roy Morgan, over 1.6 million Australians with mortgages were at risk of mortgage stress between October and January, which accounts for nearly a third of all mortgage holders. This number has surged by 800,000 since the Reserve Bank began raising rates in May 2022. The cash rate has increased from 0.10% to 4.35%, leading to significant rises in monthly mortgage repayments.

Monthly mortgage repayment increases

However, there’s a glimmer of hope as lenders are starting to adjust loan prices in anticipation of potential rate cuts in the future.

In the first half of March, Mozo, a financial comparison website, recorded 428 changes to home loan rates, with 313 being cuts. While most of these cuts were for fixed-rate loans, Rachel Wastell, Mozo’s spokesperson, sees it as a positive sign for mortgage holders.

“The widespread cuts to fixed rates suggest that the market believes we’ve reached the peak of the rate hike cycle. The focus on three-year terms indicates that the RBA may reduce the cash rate sooner rather than later.”

The Reserve Bank Board has changed its schedule, skipping the monetary policy decision in April. Instead, they will convene on May 6 and 7 for their next meeting.

Source: https://www.moneymag.com.au/rba-holds-cash-rate-march-2024