Reserve Bank of Australia keeps interest rates on hold for the first time since April 2022

Australian borrowers have been spared a rate rise for the first time in a year but the relief is likely to be short lived because inflation is still too high.

The Reserve Bank of Australia has left the cash rate on hold at an 11-year high of 3.6 per cent, marking the first pause since April 2022 – but Governor Philip Lowe has hinted another rate rise was likely.

This month’s pause has followed 10 consecutive monthly interest rate rises, the most severe pace of monetary policy tightening since the era of the RBA target cash rate began in 1990. 

Dr Lowe acknowledged the full effects of the previous rate rises were yet to be felt, noting the RBA needed to look at the effects of an economic slowdown.

‘The board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt,’ he said.

‘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.’

Inflation has moderated from last year’s 32-year high of 7.8 per cent with the monthly measure for February showing a consumer price index of 6.8 per cent.

But this measure, from the Australian Bureau of Statistics, is still well above the RBA’s 2 to 3 per cent target. 

Dr Lowe hinted at another rate rise, with inflation not expected to return to the target range until mid-2025.

‘The board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target,’ he said.

‘The central forecast is for inflation to decline this year and next, to around 3 per cent in mid-2025.’

The RBA noted inflation was moderating in Australia as a result of global supply pressures easing and a slowdown in local demand.

‘Goods price inflation is expected to moderate over the months ahead due to global developments and softer demand in Australia,’ Dr Lowe said.

The Commonwealth Bank and Westpac both correctly predicted a pause in April but they are expecting another 0.25 percentage point rate rise in May that would take the cash rate to 3.85 per cent.

One more rate rise means a borrower with an average, $600,000 mortgage would see their monthly repayments climb by $95 to $3,472, up from $3,377. 

Annual repayments on a typical loan have already increased by $12,852 since the rate rises began in May, ending the era of the record-low 0.1 per cent cash rate.

On top of that, Australia’s 880,000 borrowers with a fixed-rate mortgage face severe increases as their ultra-low two per cent fixed rate loan periods expire in coming months, which will see many forced on to ‘revert’ variable rates of more than seven per cent. 

Tim Lawless, real estate data group CoreLogic’s research director, said the end of the rate hikes was likely to spark a property market recovery as consumer sentiment improved. 

‘An increased level of certainty around the rate hiking cycle should flow through to an improvement in consumer sentiment, which has been stuck at levels seen during the worst of the Global Financial Crisis and early phase of the pandemic,’ he said.

‘We know that consumer sentiment and housing market activity have a close relationship, so any upwards movement in spirits could see more buyers and sellers returning to the market, although we would need to see sentiment lift materially before returning to average levels.’

The Australian Securities Exchange’s 30-day interbank cash rate futures market had anticipated the RBA would stop raising rates, before Tuesday’s announcement.