Economists warn of more hikes after RBA held off on 11th straight rate rise

Following the money predicted the RBA’s April decision, find out what investment markets say about the rate you’ll pay next month and beyond.

The Reserve Bank of Australia’s record run of interest rate rises is finally over, although it has warned monetary policy “may” be tightened again.

After more hikes than the Blue Mountains, Governor Philip Lowe on Tuesday announced the cash rate would remain unchanged at 3.6 per cent – a shift that was broadly welcomed.

The RBA is the first major central bank to pause increases since the collapse of financial institutions including America’s SVB and Credit Suisse in Europe.

Following ten increases in a row, Mr Lowe 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.”

He said “recent banking system problems in the United States and Switzerland have resulted in volatility in financial markets and a reassessment of the outlook for global interest rates.

Governor, Reserve Bank of Australia, Philip Lowe. Picture: Nikki Short

“These problems are also expected to lead to tighter financial conditions, which would be an additional headwind for the global economy.”

Mr Lowe said there was now a “substantial slowing in household spending” – a description he hasn’t used before – due to higher interest rates, cost of living pressures and a decline in house prices.

When already-announced increases are passed through in full to mortgages, the collective monthly repayment on all variable-rate home loans will be about $3.2 billion higher than it was before the RBA began its crusade against rising prices.

Treasurer Jim Chalmers said while the RBA’s decision would “come as a relief for a lot of Australians, we know people will continue to struggle.”

Opposition treasury spokesman Angus Taylor said the government needed to control spending to ease inflationary pressures.

Mr Lowe warned there could be a need to ratchet up rates again.

Mr Lowe warned more rises could be necessary- hinting that Tuesday’s reprieve may not last. Picture: Nikki Short

He said “the board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target,” which is 2-3 per cent, versus 6.8 per cent and falling in February.

Economists at CBA, Westpac, RBC and Barclays are among those to predict one more increase – in May.

Westpac’s Bill Evans said “the RBA Board has softened its clear tightening bias but not enough for Westpac to change its view that we can expect one final rate increase at the May Board meeting” because inflation is still too high.

By contrast, Nomura’s Andrew Ticehurst said he was increasingly confident that 3.6 per cent would prove to be the peak.

“The economic outlook would appear to make a hike in May unlikely, in our view,” Mr Ticehurst said.

Nomura senior economist Andrew Ticehurst

Futures markets – which did a better job than economists in predicting the April reprieve – also indicate there will be no more rises.

Mr Lowe said “in assessing when and how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending … the outlook for inflation” and the jobs market.

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

Economists at CBA and AMP forecast rate cuts by the end of this year to boost low economic growth and ease pressure on households.

11TH HIKE A ‘SLAP IN THE FACE’, RBA WARNED

It comes after the Reserve Bank of Australia was urged to halt its unprecedented spate of rate hikes, as more and more businesses report sharp falls in new orders.

And the country’s top union leader has implored the RBA to bear in mind people who are missing meals and avoiding healthcare to scrape together the money to meet their ever-increasing mortgage repayments.

The central bank’s board will on Tuesday decide whether to raise rates for an 11th meeting in a row in its quest to quash inflation.

While there was little doubt Governor Philip Lowe and co would hike after each of the previous 10 meetings, this month’s decision is considered finely balanced.

Sixteen of 27 top-flight economists surveyed by Bloomberg expect a pause; the other 11 anticipate a quarter-point increase, which would lift the benchmark cash rate to 3.85 per cent. It was 0.1 per cent this time last year.

RBA Governor Philip Lowe at a conference in March. Picture: Nikki Short

The record run of rises has already added nearly $1000 a month to repayments of $500,000.

Another 25 basis point increase would cost a borrower with such a loan a further $77 a month.

That’s what economists at ANZ and NAB anticipate will be announced at 2.30pm on Tuesday, because inflation is still way above where the RBA wants it.

However St George Bank senior economist Pat Bustamante expects the RBA to halt.

“There is a growing chance that the incoming data will continue to point to an economy that is slowing and slowing quickly,” Mr Bustamante said.

“If this is the case, we may have already seen the last hike of this cycle.”

The Hallett family is hoping for a reprieve. Picture: Tim Pascoe

Australian Industry Group CEO Innes Willox, who represents the views of businesses employing 760,000 people, said a reprieve would be welcomed.

“The Ai Group is hearing an increasing number of anecdotal reports from businesses of sharp falls in new orders,” Mr Willox told The Daily Telegraph.

“This, combined with a spate of business failures among domestic builders and the tremors reverberating in global banking, points to a heightened risk that we could see a significantly steeper downturn than has been evident to date in the official data.”

A Industry Group chief executive Innes Wilcox.

Business NSW CEO Daniel Hunter said a pause “would help businesses take a breath and adjust to the new economic environment without having to lay off staff or shut their doors completely.”

Australian Council of Trade Unions Secretary Sally McManus said “there are real people behind these statistics who are skipping meals, avoiding healthcare and dreading the next bill. The RBA should bear this in mind when it makes its decision.”

The RBA board does look at business conditions and consider feedback from employers and unions as part of its monetary policy deliberations.

Secretary of the ACTU Sally Mcmanus. Picture: Martin Ollman

Families are begging the Reserve Bank of Australia to hold fire as they battle to make ends meet and pay off their mortgages.

Western Sydney mother Debra-Marie Hallett said another rate rise would be “a slap in the face” with her family “definitely” struggling to meet their repayments in the wake of previous last ten rises.

“More of the money we have is going towards paying the mortgage and not towards our family,” she said.

“It’s been absolutely relentless.”

The registered nurse said she and her husband Trevor Hallett, a concreter, have struggled particularly given their salary has not risen to meet the repayments.