RBA Cash Rate Update – Rates now on pause

The Reserve Bank of Australia announced on Tuesday 4th April that the target cash rate would remain unchanged at 3.60%.

This is welcome news by Mortgage Holders, however the statement from the RBA Governor, Philip Lowe suggested that this may not mean the end to future increases. Most telling was the last two paragraphs in the statement…

“The Board’s priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment. The Board is seeking to return inflation to the 2–3 per cent target range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.

The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target. The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty. In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

Murray Nicol, Financial Advisor at BKM Wealth was correct in his opinion last month that the RBA will pause on an increase to the Cash Rate in April but he still expects an increase to the cash rates a further 2 times between now and August.

The two graphs below show that while inflation here and around world the has peaked and fallen, we will be closely watching the March Quarter Australian CPI data release on April 27 to confirm this.

Whilst there is still a reasonable chance the RBA will hike again this cycle, with the stress in the global banking sector having implications for global credit creation, the expectation is that the Cash Rate won’t be materially above 4%.