No fooling around – rate cuts off the table in April
Mortgage holders may have to wait a little longer for more relief as a hawkish central bank and a lack of crucial data dash any chance of a rate cut next week.
Set to meet on April Fool’s Day, the Reserve Bank of Australia (RBA) is widely expected to leave interest rates on hold at 4.1 per cent.
This is unsurprising to many given the board’s rhetoric (revealed in the February meeting minutes) of members agreeing that the February decision to cut interest rates did not “commit them to further reductions in the cash rate target at subsequent meetings”.
Noting the RBA’s hawkish rhetoric, Westpac chief economist Luci Ellis said that while a rate cut in May is still expected, “back-to-back cuts in February and April were never on the table”.
“The RBA was too hawkish in its rhetoric last month for that, and the board made clear that last month’s cut did not foreshadow more. Cutting again at the April meeting would therefore be damaging to its credibility,” Ellis said.
“In order to get inflation all the way back to the 2.5 per cent midpoint of the target range, the RBA expects to need to cut by less than this.
“If things start turning out in line with this narrative, with inflation stuck at current rates and wages growth holding up in the near term, then it would be reasonable to expect the RBA to cut at most once more this year.”
Echoing a similar sentiment, managing director of brokerage Bell Partners Finance, Mark Stevenson, said while there’s been positive movements in the CPI (with the latest figures showing an annual slowing to 2.4 per cent), “most economists don’t expect the RBA to provide more good news to mortgage holders despite inflation now being well within its 2–3 per cent target range”.
“More important quarterly inflation data is not released until late April so any further movement from the RBA may have to wait until its next board meeting on May 19–20, which would be after the federal election, which must be held by 17 May,” Stevenson said.
“The RBA will be factoring in measures announced in this week’s federal budget which included another $1.8 billion for energy rebates until the end of the year.”
Chief economist at CreditorWatch, Ivan Colhoun, said that market pricing does not have the next interest rate cut fully discounted until July but also expects a small reduction during the May meeting should the next round of quarterly inflation data print “a trimmed mean of (preferably) 0.6 per cent q/q or 0.7 per cent q/q”.
“The need for larger cuts isn’t particularly there at present, with the government playing a strong supporting role for growth with fiscal policy in the budget released overnight, though it remains to be seen how much of the policy promises are enacted as this will depend on the May election outcome,” Colhoun said.
Colhoun noted a further wrinkle that may impact Australia’s economy between meetings: US President Donald Trump’s incoming tariffs.
“The scale and breadth of Mr Trump’s tariffs will hopefully become clearer on 2 April. Directly these won’t be large for the Australian economy but will affect several industries,” he said.
“The risk is indirect if there are large broad-based tariffs and reciprocal tariff action on Australia’s Asian trading partners and on Europe.”
Trump’s tariffs have also drawn concern from Stevenson, who said that the impact of Trump’s ongoing trade war will also be weighing on future RBA deliberations.
“The Trump factor can never be discounted,” he said.
This article was originally featured in Smart Property Investment’s sister brand Broker Daily.
