The Reserve Bank board did not consider the need for a further increase in interest rates in its latest decision, opting instead to keep the cash rate at 4.35 per cent, minutes of its board meeting revealed. meeting of March 18 and 19.
The RBA has proposed raising interest rates at every meeting since the central bank began its streak of 13 rate hikes in May 2022; However, the March meeting marked the first time the central bank eliminated the option.
Still, board members said risks to the economic outlook had become “a little more consistent” and stated that “it was appropriate to characterize the policy outlook as one in which it was difficult to rule out or rule out future changes in the economy.” cash rate”. objective,” the minutes said.
The Reserve Bank board did not consider the case for a further rise in interest rates in its latest decision.
Most economists and investors expect the RBA’s next move to be a cut, with money markets already pricing in a 25 basis point reduction in the cash rate at the RBA board meeting on September 23-24. .
“Members noted that inflation had continued to moderate from previous months, broadly as expected,” the minutes noted.
“That said, services inflation remained high and the recent slowdown in the pace of monthly inflation was influenced by several temporary factors.”
The RBA forecasts that inflation, currently at 3.4 per cent by its most recent measure, will fall within its target band of 2 to 3 per cent by December 2025.
Board members also noted the fact that the disinflation path in other countries had “not been easy”, which “may contain lessons for Australia”.
Bringing inflation back to target “remained the board’s top priority”, but the board admitted that “it would take some time before they could have sufficient confidence that this would occur within a reasonable time frame”.
‘At the same time, members noted the importance of preserving as much progress as possible in the labor market.
“In light of these assessments, members agreed that leaving the cash rate target unchanged at this meeting was the best way to achieve the Board’s strategy of supporting a gradual return of inflation to target and the labor market to full employment”.
Commonwealth Bank Australian chief economist Gareth Aird, who expects the RBA to cut interest rates at its final three board meetings in 2024, commented that the minutes of the March meeting were “the most moderate communication from the board since the RBA began its adjustment cycle. .
“The board is increasingly confident that the battle to return inflation to target is being won,” Mr Aird said.
“Behind closed doors (the board) will consider that the next likely move in the cash rate will be downwards, but it is too early for the board to adopt an easing trend.”
However, even as the minutes showed a softening in the bank’s rhetoric, Capital Economics’ Asia Pacific director Marcel Thieliant said rate cuts remained unlikely until the end of this year.
“During previous easing cycles, the bank lowered interest rates only after discussing rate cuts for several months.” Mr. Thieliant said.
“We expect the RBA to become the last major central bank to start easing monetary policy and we only expect the first rate cut to come in November.”
The minutes also detailed how households were faring under the weight of “restrictive” financial conditions.
The RBA has proposed raising interest rates at every meeting since the central bank began its streak of 13 rate hikes in May 2022; However, the March meeting marked the first time the central bank eliminated the option. In the photo, the governor of the RBA, Michele Bullock.
‘The tightening of monetary policy had induced a significant increase in scheduled household debt payments. “These were expected to increase slightly further in 2024, as additional fixed rate loans moved to higher rates,” the minutes read.
Home credit growth remained low and payments to offset accounts had increased since mid-2023, the minutes detailed, with low-income and less prosperous households hardest hit.
“As a result, the average housing deposit had increased at a faster rate than house prices, and new borrowers had higher incomes and lower loan-to-income ratios compared to previous cohorts.”
The board also noted that some households were finding it difficult to pay their debts and cover essential expenses, but defaults remained at a record low.
“Delinquency rates on home loans were still low and banks had recently reduced their forecasts for potential loan losses,” the board agreed.
Reacting to the minutes, Treasurer Jim Chalmers said they would be a “welcome development” for household borrowers.
“By the next Reserve Bank meeting, it will be six months since interest rates were last raised in our economy,” Dr Chalmers said.
“This will allow Australian homeowners and mortgagees to catch their breath.”
The RBA’s next board will meet on May 6 and 7, when it is expected to leave interest rates unchanged.