Millions of Australian home owners were spared another increase in their mortgage bills on Tuesday when the Reserve Bank hit pause on a record-breaking string of interest rate hikes that lasted almost an entire year.
The move – which brings an end to 10 consecutive increases that have seen repayments on a 25-year, $500,000 loan rise $983 per month – is being taken as a sign the RBA is nearing the finish line on rates, or is already there.
But those hoping the days of heaping pain onto family budgets in a bid to curb inflation are now over could still be left disappointed.
RBA boss Philip Lowe has already suggested that April may merely be a temporary reprieve for home owners, as the bank waits for more data.
“The board expects that some further tightening of monetary policy may well be needed to ensure inflation returns to target,” he said on Tuesday.
“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.”
Upcoming inflation and jobs data pivotal
Interest rates are now on hold for the first time since May 2022 at 3.6 per cent, with economists saying upcoming data on inflation and the jobs market will be pivotal in deciding whether the RBA hikes rates next month.
An ongoing easing in inflation, which has been evident in monthly data, may temper RBA appetite again in May, sparking another pause.
But should price rises continue to broaden amid a resilient jobs market, then experts don’t expect the RBA to hesitate in resuming rate hikes.
Also key will be how the hundreds of thousands of families who have yet to feel any rate hikes because their mortgages are fixed will react when these loans revert to market rates in 2023, the RBA said on Tuesday.
Sean Langcake, head of macroeconomic forecasting at BIS Oxford, said another rate hike is likely in May because inflation is “still far too high”.
“A pause doesn’t mean a peak,” he said.
“The statement still talks in terms of how much further rates may go up.”
EY chief economist Cherelle Murphy said the RBA had paused interest rates in April, but “hawkishly” amid ongoing concern about above-target inflation.
“The unemployment rate fell back to 3.5 per cent in February, and full-time employment picked up strongly – meaning the jobs market remains tight and wages under upward pressure,” she said.
More mortgage pain on the horizon?
Commonwealth Bank chief economist Gareth Aird still expects one more 0.25 percentage point rate hike next month (May), saying on Tuesday that April’s statement reflected a changing tone from the central bank.
“In the March statement accompanying the board decision it was stated that, ‘the board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target’,” Mr Aird said in a note.
“Today that sentence was changed to, ‘the board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target’,” he added.
“These changes indicate that the RBA board is less convinced that they will hike the cash rate again.”
ANZ Bank senior economist Felicity Emmett said more rate hikes are still likely, but that the RBA was shifting to a position where further rises would be more data dependent.
“We continue to think inflation will prove persistent enough to require the RBA to tighten monetary policy further in the months ahead,” she said.
“In our view, the question is not so much one of ‘where’ the RBA gets to (we still favour 4.1 per cent as the terminal rate), but ‘when’ it gets there.”
Independent economist Nicki Hutley offered a different view, suggesting the “central case” was that rate hikes are now over, with the RBA now likely to continue pausing so long as inflation doesn’t begin rising again.
“My gut feeling is that we don’t need any more and we’ve seen the last of them,” she said. “It would be foolish to write off the possibility.
“A further hike would risk pushing us off that narrow path into a recession.”
