No rate rise likely in April as RBA weighs up inflation outlook

RBA governor Philip Lowe has all-but announced he won’t raise the official cash rate next month and a hike in May will all depend on whether inflation falls in the March quarter.

RBA governor Philip Lowe. Picture: Arsineh Houspian

Reserve Bank governor Philip Lowe has all-but announced he won’t raise the RBA’s official rate at the next board meeting in April – providing the first pause since the RBA started hiking last May.

That pause would allow the RBA to see whether it’s correct in believing that inflation peaked in the December quarter.

It would also enable the RBA to better assess whether the economy is slowing – too much ‘just right’, or not enough? - in response to the rate rises so far.

That’s to say, bluntly and simply, whether the RBA has already ‘done enough’, so as to stay on his targeted “narrow path” – of slowly bringing inflation down without tipping the economy into recession and sending unemployment rocketing.

The ‘signal’ of what’s almost certainly his ‘current intention’ for April was all in the words, very deliberately chosen, in his statement Tuesday.

In February, at the first meeting back for the year – and straight after the official ABS figures showed inflation had rocketed to 7.8 per cent over the 2022 year – the RBA not only hiked, by 25 points, but deliberately signalled more hikes to come.

His February statement said bluntly: “the board expects that further increases in interest rates will be needed over the months ahead”.

This March statement, though, used far more general – indeterminate – language. That the “board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target”.

No direct reference to rate rises; and no reference to “over the months ahead”.

Yes, he went on to say Tuesday that the board would assess “when and how much further interest rates need to increase”.

But that’s very close to saying “when and if” further rate rises are needed.

And when you put it together with the more general reference to expecting “further monetary tightening” – a very deliberate avoidance of saying an expectation of further rate rises – the clear message is that there will be an April pause.

That would leave open a further pause at the May meeting – or a return to rate hikes (probably the 25 points, not a 50-pointer).

The May decision will be completely separated from the budget. He won’t be ’second-guessing’ fiscal policy.

It will be all about what the March quarter inflation numbers, released at the end of April, show. Along with any wages data along the way as well.

If the inflation numbers do show a significant fall from December, they would probably lock in pauses in June and July as well.

Then the future of rates would all turn on what the June quarter inflation numbers showed at the end of July.