RBA poised to hold interest rates in pre-Easter relief for home buyers

The Reserve Bank is poised to halt its record run of interest rate rises on Tuesday, providing home buyers some pre-Easter relief after lifting average mortgage repayments over the past year by more than $1200 a month.

Financial markets are expecting the bank to hold the cash rate at 3.6 per cent at its meeting and keep interest rates there for the rest of the year. The RBA has not previously moved interest rates, up or down, where markets have fully priced in no change.

The Reserve Bank is poised to halt its interest rate increases on Tuesday, after taking the cash rate to 3.6 per cent from 0.1 per cent since May last year.Credit:Peter Rae

But some economists are sceptical. The economics teams at both the ANZ and NAB are among those expecting the RBA to take the cash rate to a fresh 11-year high of 3.85 per cent, because of ongoing concerns about inflation and the impact of the nation’s tight jobs market on wage growth. Their counterparts at the Commonwealth Bank and Westpac believe the RBA will hold.

Since the Reserve’s last meeting, inflation and retail trade figures have suggested previous rate rises are starting to slow the economy.

AMP Capital deputy chief economist Diana Mousina said recent data showed economic growth momentum easing, albeit from a high base, while inflation was slowing at a faster pace than the Reserve Bank was expecting.

AMP’s Diana Mousina says the Reserve Bank is likely hold interest rates at its Tuesday meeting.

“Alongside the risks from the global banking sector, this should be enough to get the RBA to pause,” she said.

“While we think that the RBA will keep the cash rate unchanged at its current level of 3.6 per cent from now until the end of the year, when we expect rate cuts to occur, the risk is of another hike in coming months given high inflation.”

The bank has lifted the cash rate at its past 10 consecutive meetings. On an average $600,000 mortgage, repayments over that period have climbed to almost $3600 a month. In April last year, monthly repayments on the same mortgage were $2370.

Expectations that the RBA would hold interest rates steady at its April board meeting increased sharply after minutes of its March meeting showed members agreeing that a pause in April would “allow additional time to reassess the outlook for the economy”.

Loans for owner-occupiers and investors have both fallen by more than 30 per cent since February 2022.Credit:Peter Rae

Turmoil in the US and European banking systems has only added to the case for a rates reprieve.

Data released on Monday highlighted the pain being felt in the property market from higher interest rates.

The Australian Bureau of Statistics reported that despite a slight lift in February, the number of building approvals nationally has collapsed by more than 31 per cent over the past 12 months.

There were 12,661 dwellings approved in February, the worst result for that month since 2012. The country has added 3.5 million residents over the past 11 years, lifting demand for all housing.

The apartments and units sector is feeling the most pain. Approvals for these dropped another 9.5 per cent to be down by 45 per cent over the past year.

The value of loans for homes fell in February. Loans for owner-occupiers and investors have both fallen by more than 30 per cent since February 2022.

There is also growing evidence that the jobs market is turning. The ANZ-Indeed measure of job advertisements fell another 2.4 per cent in March, its third drop in the past four months.

ANZ senior economist Catherine Birch said while ads had fallen 7.2 per cent from the September peak, they were still 50 per cent above their pre-pandemic level.

“As such, we expect the labour market will remain very tight through 2023, with unemployment staying below four per cent,” she said.

Holding the cash rate steady this month would enable the bank to discuss the impact on the economy from the May federal budget. The Treasury secretary, Steven Kennedy, sits on the RBA board.

Prime Minister Anthony Albanese told ABC radio the budget, to be released on May 9, was being put together to “prioritise responsible investments that don’t add to inflation”.

“Measures like fee-free TAFE, which cost money to the budget, obviously it’s a substantial investment, but they’re adding to supply, they’re dealing with some of the supply chain issues of labour shortages which are adding to costs.”

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