RBA pulls brakes on rate hikes

Yasmine Raso

Senior Journalist, Financial Newswire

4 April 2023

The Reserve Bank of Australia (RBA) has made the move to pause interest rate increases for the month of April, leaving the cash rate target at 3.60 per cent.

The decision comes as market commentary seemed uncertain if another 25-basis-point hike was on the cards which would have taken the rate up to 3.85 per cent.

RBA Governor, Philip Lowe, said the full effect of the 3.5-percentage-point increase since May last year is yet to be felt which warranted the time to “assess the impact… to date and the economic outlook”.

“Global inflation remains very high. In headline terms it is moderating, although services price inflation remains high in many economies,” he said.

“The outlook for the global economy remains subdued, with below-average growth expected this year and next. The recent banking system problems in the United States and Switzerland have resulted in volatility in financial markets and a reassessment of the outlook for global interest rates.

“These problems are also expected to lead to tighter financial conditions, which would be an additional headwind for the global economy.”

The RBA Board announcement said the monthly consumer price index (CPI) indicator has signalled inflation has peaked in Australia, with expectations it will moderate in the coming months and decline to the three per cent target in mid-2025.

“Growth in the Australian economy has slowed, with growth over the next couple of years expected to be below trend,” it said.

“There is further evidence that the combination of higher interest rates, cost-of-living pressures and a decline in housing prices is leading to a substantial slowing in household spending. While some households have substantial savings buffers, others are experiencing a painful squeeze on their finances.”

However, the Board flagged its expectation that further monetary policy tightening will be required to ensure inflation remains under control.

“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.”