RBA halts rate rises after 10 consecutive months

The Reserve Bank of Australia has handed down its call on whether to lift rates for the 11th straight month.

Mortgage holders have been warned there could be more interest rate rises to come despite the Reserve Bank halting its unprecedented run of hikes in April.

The central bank left the cash rate on hold, for the first time in a year after 10 consecutive rises, at 3.6 per cent when it met on Tuesday.

But homeowners hoping it could spell the end of the RBA’s tightening cycle could be in further pain later in the year.

“The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target,” governor Philip Lowe 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, in an environment of considerable uncertainty.”

Mr Lowe said the bank would be paying close attention to trends in household spending, inflation and labour market data ahead of its next meeting just before the May budget.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that,” he said.

Over the last ten months, the RBA has aggressively lifted rates from a record low 0.1 per cent last May in a bid to curb skyrocketing inflation.

Inflation rose to 6.8 per cent in 12 months to February, falling from 7.4 per cent annual growth in January and down from the peak of 8.4 per cent in December.

But it is still well above the bank’s target range of two to three per cent.

RBA Governor Philip Lowe left the door open to further rate rises. Picture: NCA NewsWire / Nikki Short

Dr Lowe warned the “full effect of (the) substantial increase in interest rates is yet to be felt”.

Ahead of the meeting, economists at the big four banks were evenly split as to which way the RBA would move. Westpac, Commonwealth Bank and the financial markets had tipped a pause.

The economic teams at ANZ and NAB had predicted a 25 basis point hike to 3.85 per cent.

Sean Langcake, head of Macroeconomic Forecasting for BIS Oxford Economics, said the decision allowed the RBA to buy itself some time.

“Nevertheless, today’s statement still leaves the door open to future rate hikes,” he said.

“The release of the quarter one consumer price index data ahead of the May meeting will be a pivotal piece of information. Inflation remains uncomfortably high, and the very tight labour and rental markets have the potential to provide an upside surprise on inflation.”

NAB’s executive of home ownership Andy Kerr told NCA NewsWire the lender anticipates a further rate rise later in the year, which would bring the cash rate up to 3.85 per cent.

“It is great to get a bit of certainty and stability over the Easter holidays. We do still think there's probably one more rise to come,” he said.

“Right now it's time for Australians to take advantage and prepare themselves a bit better for what might still be to come.”

Mr Kerr said borrowers should take the time to calculate what another quarter per cent rate rise would mean for their mortgage repayments.

Finance Minister Katy Gallagher, standing in Treasurer Jim Chalmers while he battles another bout of Covid-19, said the pause would come as welcome news for households and business and followed early signs inflation had peaked.

Finance Minister Katy Gallagher said the RBA decision was welcome news. Picture: NCA NewsWire / Gary Ramage

But she was quick to dismiss concerns of a wage-price spiral, which the governor included in the central bank’s statement accompanying the rate decision.

“I think if you look at the list of contributors to inflation, wages are not one of them,” Senator Gallagher said.

“We can list a whole range of other contributors and we want to see wages moving again, but we don’t believe there’s any evidence of a wage-price spiral.

“The central bank is obviously going to keep an eye on that as they should.”

Originally published as RBA halts rate rises after 10 consecutive months