Australian homeowners have been spared another brutal interest rate rise – but the relief is likely to be short lived.
As expected, the Reserve Bank of Australia hit pause on its record run of increases to the official cash rate in April, providing households with some much-needed Easter relief.
The RBA will hold the cash rate at 3.6% for April, following 10 consecutive monthly interest rate rises.
In announcing a hold, RBA governor Philip Lowe said the full effect of interest rate rises was yet to be felt.
“The Board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook,” Lowe said in a statement.
The Governor added that current data suggests inflation has peaked in Australia, but acknowledged households were feeling the pinch.
“Growth in the Australian economy has slowed, with growth over the next couple of years expected to be below trend. 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.”
Looking ahead
Scott Solomon, Associate Portfolio Manager of T.Rowe Price’s Dynamic Global Bond Strategy predicted that the RBA would pause rate increases this time, but says the committee could initiate a 25-basis point increase in May.
“The RBA has expressed a willingness to target a soft-landing and maintain the high level of employment in the economy which supports a more patient approach.
“However, growth data continues to remain weak, particularly construction and housing activity…with the inflation data over the last month also signalling moderating pressures on the margin. Although the labour market remains tight, the continued feed-through of tightening to households will be a significant headwind to demand and suggests downside risk to our terminal rate view,” Solomon says.
Yesterday finance guru Ross Greenwood gave homeowners hope yesterday when he speculated publicly that RBA Governor Phillip Lowe would pause increases to the official cash rate for the first time in 10 months.
“Do you want to know the reason why I think they’re actually going to keep the rates on hold tomorrow?’ Greenwood told Business Now on Sky News. ‘That is because the Governor is addressing the National Press Club on Wednesday. He’s doing this [press briefing] on Wednesday and he normally doesn’t do those types of things unless there’s some of a change in the policy or the message.
“My gut feel is that there’s a change in the message and that’s the reason why [rates won’t change].”
