Financial markets,which accurately predicted the RBA would hold rates on Tuesday,now expect the bank to keep the cash rate at 3.6 per cent until year’s end. The chance of a rate rise in May is less than one in 10.
Lowe said inflation appeared to have peaked in Australia,with the rate of growth for the prices of goods likely to moderate over coming months due to softer local demand and “global developments”.Inflation eased to 6.8 per cent in February.
But he said rents were still increasing at “the fastest rate in some years” while the cost of utilities was also rising.
The decision to hold interest rates for a month will save a person with a $600,000 mortgage about $100 in higher repayments. But since the RBA started lifting rates,repayments on the same mortgage have climbed from around $2300 a month to almost $3600.
Finance Minister Katy Gallagher said the decision to leave rates on hold would be welcome news for many Australian households and businesses,adding that addressing cost-of-living pressures was a key priority for the government ahead of its May budget.
“Obviously,we are looking at spending restraint. We’ve got a budget under enormous stress – I say that with emphasis,enormous stress – with the pressures coming towards the budget accelerating,not reducing,” she said.
Shadow treasurer Angus Taylor said households were struggling and the government needed to ensure its budget next month did not make that pain worse.
“Inflation is still far too high and the government must do everything in its power to bring it down and that means controlling its spending,” he said.
EY chief economist Cherelle Murphy said the Reserve Bank governor had left open the possibility of either pausing or raising rates at next month’s meeting.
“Governor Lowe’s statement signalled this is a pause with a hawkish feel,” she said.
“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.”
RBA governor Philip Lowe
“More rate hikes are possible in order to bring inflation back into the 2-3 per cent band in an acceptable time frame – although there is less conviction in the bank’s statement compared to last month.”
Commonwealth Bank’s head of Australian economics,Gareth Aird,said the watered-down tone from the governor – who said further rises may be needed,rather than will be needed – suggests there are few rate rises to come.
“These changes indicate that the RBA board is less convinced that they will hike the cash rate again,” he said.
Moody’s Analytics economist Harry Murphy Cruise said the bank may not yet be finished.
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“Despite the pause,the fat lady isn’t singing just yet. The board will need to see a continued easing in the labour market,inflation and household spending data in coming months to ensure it’s on the right path. If that doesn’t eventuate,we can expect the board to push ahead with tightening,” he said.
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